The Only Annuities We Would Recommend - SPIAs and QLACs for retirement income
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- Опубликовано: 20 июл 2024
- 00:00 Intro
1:38 Single Premium Immediate Annuity (SPIA)
2:42 SPIA example
4:15 SPIA pros and cons
6:42 SPIA alternatives
9:25 When a SPIA makes sense
12:00 - Qualified Longevity Annuity Contract (QLAC)
13:51 QLAC example
15:27 QLAC pros and cons
17:14 QLAC alternatives
19:44 When to consider a QLAC
21:33 QLAC vs long term care insurance (LTCi)
In this webinar we reviewed 2 types of annuities that we would recommend:
SPIAs, or single premium immediate annuities are simple and offer guaranteed payouts for a certain period of time.
QLACs, or qualified longevity annuity contracts are one of the best ways to protect against longevity risk, or the worry of outliving your assets.
Very nice review! Fair and balanced!
Thank you for watching and for the comment!
A pro you didn't mention of the QLAC is Tax savings initially at RMD age.. so 200k at age 73 the RMD is about 4% or $8000.. in a 25% tax bracket.. you save $2000 the first year in income tax.. because the 200k is in a QLAC and does not count toward RMD. The per cent goes up each yr and so the tax savings does to.. at age 85 you pay taxes on the annual payout.. but it is in inflated dollars (12 yrs later). Also a benefit of a QLAC is that even tho it comes from an IRA.. the payout can be structured in a joint last to live payout.. so it keeps paying until both spouses are deceased .
Don't know why you would not recommend a third type of annuity.. MYGA.. the insurance version of a CD.. it pays more than a CD, interest is tax deferred unlike a CD.. and has provisions to allow withdrawals each year if you want of interest earned or in some cases- 10% a yr to provide income.
One can get a 7 yr MYGA at 6.55% now.. canvas annuity.
Thanks for watching and for the comments.
Regarding the tax savings from not taking early RMDs. We did not mention that because QLACs are not useful purely as a tax reduction tool. You are right they defer (and that can be valuable under specific circumstances), but in general, they are not useful solely for tax reducing your lifetime tax bill. I think this article is the best detailed description of this: www.kitces.com/blog/why-a-qlac-in-an-ira-is-a-terrible-way-to-defer-the-required-minimum-distribution-rmd-obligation/
Regarding MYGAs, while they are certainly not the worst, we just feel like there are many other options to get a similar return that doesn't require locking up money in an annuity. Again, for specific circumstances they could be very valuable, but not for the broad market.
Thanks again for watching and for the comments!
Thank you. How would the bond fund income be taxed assuming you bought with non qualified funds?
Thanks for watching and for the question. The interest from the bond funds would be taxed as income. There would also be some capital gains when the funds mature.