July 2017 - QLAC Quote

Major concern for retirees is the running out of money during retirement. You have accumulated a portfolio for the last three decades while working now you have to make that money last with pulling income for the next 25 years or is it 30 years or 35 years?

Here lies the problem. How many years will I live so I can figure out how much to pull from my portfolio every year without running out of money. Yet without knowing the time period, it’s impossible to know if you should be spending more or less and if the investments in the portfolio can be more conservatively invested or be somewhat more aggressive in your stock allocations.

QLAC, also known as a longevity annuity, provides guaranteed lifetime income later in life. The income start age is chosen by the owner at deposit which must begin by age 85.

The benefit of using QLAC in your income planning is to solve for the unknown time period problem. As an example a 65-year-old couple that purchases a QLAC with income starting at age 85 will cover all of their inflated income needs after age 85. Now the couple’s retirement income question just got simpler. They will now only need to solve for the income for the next twenty years (age 85), which is defined, as the QLAC will provide inflation adjusted income for life after age 85.

The 65-year-old couple has $1,000,000 and wants to spend $40,000 per year from their retirement portfolio for the rest of their lives and increase annual payment 3% per year for purchasing power in the future. $40,000 per year increase for inflation every year will be $72,244.45 per year at age 85 or in 20 years. Today the couple can purchase a QLAC also called a Longevity annuity for their future $72,244 per year, or $6,020 per month, beginning at age 85 for a one time deposit today of $260,000. The QLAC or Longevity annuity purchase will leave the remaining $740,000 of the retirement portfolio available to cover the next 20 years from age 65 to 85. Since QLAC has a limit of $125,000 deposit the amount can be split among both of their IRAs and or non-qualified longevity annuity. All have the same deposit and income payout terms.

The couples “problem” just got a whole lot easier to figure out now, instead of trying to invest $1,000,000 for a $40,000 per year inflation-adjusted retirement income for an unknown time period. The couple can invest $740,000 for a $40,000 per year inflation-adjusted income for exactly 20 years, secure in knowing that all payments beyond that point will be covered by the QLACs and backed by the longevity insurance company guaranteed lifetime income payments. The QLACs will also allow the couple to take more risk in their portfolio knowing the guaranteed lifetime income payments are not to far off to cover the unknown retirement income time horizon.

For a no annual fee QLAC and no free quote see www.QLACQuote.com where we compare all QLAC approved companies to find you the best income amount.

When you turn 65 and apply for Medicare benefits from the government the choice seems to be straight forward and simple to complete. Your decisions at this time of your retirement can derail your income later in retirement. Choosing which Medicare plan to take at what monthly cost seems straight forward. Plan A & B. Supplemental Medicare plans purchased thru insurance companies help will the coverage gaps. What if I told you that if you make a certain amount of income after age 65 that your Medicare Plan could cost you more than your neighbor down the street. That is called a Medicare surcharge. What if I told you that a 55 year old couple today would not receive a social security deposit into their bank account every month because the cost of Medicare plans and external expenses would “eat” all the social security income deposits up every month. Would these statements derail your income plan in retirement?

According to a Nationwide study, 76% of retirees surveyed underestimated the external costs in retirement for medical expenses or could not calculate their costs. Medicare only covers about 62% of expenses associated with health care services.
The two factors that contribute to health care expenses rising and taking over your social security income deposits are high inflationary costs and Medicare surcharges to help offset Medicare costs for lower income retirees in the Medicare system.

COLA or cost of living adjustment to social security income has averaged around 2 percent a year for the last ten years with three periods of no increase to COLA. Combine that low social security income increase to the average 8% Medicare increase and you can see why in the longer period that health care expenses such as Medicare premium payments will consume the vast majority of social security income later in life. With well over half of American retirees relying on social security income as their only source of income in retirement this should be a concern going forward.

Medicare plan surcharges are based on a MAGI or Modified adjusted gross income schedule for single and couples. MAGI is the total of your household’s adjusted gross income plus any tax-exempt interest income. Examples of tax-exempt income would be life insurance loans, non-qualified annuity income, Roth IRA proceeds and longevity insurance or annuity income.

The Medicare surcharges for a single taxpayer start at $85,000 in yearly MAGI. Surcharge for Medicare premiums for couples start at $170,000. At both of these levels the surcharge is 37% increase than standard Medicare plan cost. These surcharges can increase all the way up to 204%. The key concern is that the surcharge income schedule range is NOT pegged to inflation; so as our earning power increase the schedule stays the same and more retirees will be effected.
For younger people not yet in their sixties these two cost increases will consume more social security income as most retirees count on social security checks to live on. Check out www.Medicare.gov and www.benefitscheckup.org for help on your Medicare benefits.

Month: July 2017

Retirement income planning using QLAC for age 85