A QLAC in a Diversified Portfolio
- A QLAC provides a guaranteed income in retirement to cover basic spending needs, which allows you to invest the rest of your savings better
Here’s advice that you’ve probably heard before — diversifying your portfolio is good. That means making sure your savings are invested in a variety of products so that you have a secure retirement, even if one investment doesn’t work out like you hoped. You may not have considered putting a QLAC (Qualified Longevity Annuity Contract) in your portfolio before, but we’re here to show you how it can fit into your retirement planning, and why it’s a good idea to secure lifelong income.
Generally, you’ll invest in a combination of equity and bond market investments that you are comfortable with, depending on how risky you want to be and when you plan to retire. The further from retirement you are, the more risky you can afford to be — so more equity investments, like stocks. The closer you get to retirement, you want to shift more and more to safe fixed income investments, like bonds.
Fixed income investments provide steady, reliable income that doesn’t depend on the stock markets. Sound familiar? That’s because it is —a QLAC serves this exact purpose, but with an additional, major benefit: the income payments will continue for your whole life, and they’re not subject to RMDs until age 85. There’s no balance to run down, because it’s an insurance product!
Allocating a portion of your savings to a QLAC can generate comparable quantitative returns and eliminate the risk of outliving your savings, giving you a peace of mind that is priceless. In fact, a QLAC can allow you to be riskier with the rest of your investments and earn a higher rate of return on those. It can help you know that some of your spending later in retirement will be covered, you have even more flexibility to invest the rest of your money in higher-return (but higher-risk) stocks to cover discretionary expenses, without putting your future at risk.