Like many Americans, you may have started planning for your “Golden Years” when you began your first “real” job and have been planning and saving ever since. If you are now nearing retirement, or have already entered your retirement years, you may be worried that despite your best efforts, your retirement savings won’t stretch far enough. In short, you are concerned that the money will expire before you do. If you find yourself in this predicament, the Los Angeles attorneys at Schomer Estate & Wealth Advisors explain how a Qualified Longevity Annuity Contract might be able to help.
The “Average Life Expectancy” Dilemma
About 100 years ago, the Americans had an average life expectancy of 46-48 years, depending on if they were male or female. Today, their 21st century male and female counterparts can expect to live to 76 and 83 years, respectively. Although the average life expectancy has almost doubled in the last century, the retirement age has only inched up a couple of years since it was set at 65 years old back in 1935. In practical terms, that means that the current generation of Americans are spending a lot more time enjoying their “Golden Years” than previous generations. While the prospect of spending decades more time in retirement sounds wonderful, it can present a problem for many people if their retirement nest egg doesn’t stretch far enough. Unfortunately, that is often exactly what happens.
The dilemma stems from the fact that retirement accounts use a complex formula that is based on your life expectancy at the time the account is opened. Imagine that you opened a retirement savings account when you started working 50 in the 1970s. The average life expectancy has increased about 10 years since you started saving, but the formulas used to determine how much you needed to save likely remained the same. Consequently, your retirement savings will run out 10 years prior to you reaching your average life expectancy. If you live longer than expected, you have an even bigger gap between your savings and your financial needs. Although you cannot go back and save more money, a Qualified Longevity Annuity Contract may be able to help now.
Understanding How a Qualified Longevity Annuity Contract Works
The prospect of outliving your retirement savings is certainly unsettling. Fortunately, a Qualified Longevity Annuity Contract (QLAC) may be able to help. A QLAC is a type of deferred annuity contract that uses a single lump sum withdrawal from an existing retirement account, such as a 401k, 403b, IRA, or another tax-qualified account, to help make sure that you do not outlive your retirement savings.
Up to $200,000 (as of 2023) can be transferred into the QLAC account, according to the rules contained in the 2022 SECURE Act, without the withdrawal being considered a taxable event by the IRS. As with other retirement accounts, withdrawals from the QLAC, however, will be taxed down the road. What sets a QLAC apart from accounts such as a 401k or an IRA is the age at which you are required to start making withdrawals. For most traditional retirement accounts, you must start accepting disbursements by age 75. With a QLAC, however, you are not required to start making withdrawals until you reach age 85 and withdrawals from a QLAC can qualify for the minimum distribution requirements for other retirement accounts. Because a QLAC is an annuity, you are guaranteed a pre-determined income stream from the account when withdrawals do begin, ensuring that you will have sufficient funds to enjoy your retirement years no matter how long they last.
Do You Have Additional Questions about How a Qualified Longevity Annuity Contract Can Help You?
For more information, please join us for an upcoming FREE seminar. If you are interested in discussing how a QLAC might fit into your overall estate plan, contact the experienced Los Angeles retirement planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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