QLACs Help Young Workers Structure Their 401ks

Roll the Dice on Your Financial Future, but a QLAC is a Safe Bet!
Roll the Dice on Your Financial Future, but a QLAC is a Safe Bet!. By ekash / E+ / Getty Images

QLACs Help Young Workers Structure Their 401ks 

The people that have the money rule the world.  We all know that, and most decisions in the financial world revolved around the top 10% of the public that controls over 90% of all the assets.  This is not a political speech, these numbers are just facts.

When the QLAC (Qualified Longevity Annuity Contract) was approved on July 1st of 2014, most of the focus from the advisor and consumer standpoint was directed toward Traditional IRA holders.

  Traditional IRA owners can use QLACs for future income needs as well as potentially reduce their taxes on Required Minimum Distributions (RMDs).  That’s a pretty big deal, and is definitely sucking the oxygen out of the QLAC room.

Click here to read more about Annuity IRA Strategies

The Real Reason for QLACs

Contrary to the “money rules the world” theorem, QLACs were actually developed for the young worker.  Yes, this pro-customer product was designed for the person with no money, and that’s a good thing. 

Within most company 401k (i.e. defined contribution) plans, you have a litany of mutual fund choices for your investments to hopefully accumulate as you work toward retirement.  The irony to that old line of thinking is that eventually, all of the supposed growth will most likely have to be converted to an income stream to sustain you through retirement.  With the introduction of the QLAC product, now young workers can use the QLAC income later pension strategy as another choice in addition to their mutual funds.

It’s going to take a while for the plan administrators and individual company leaders to implement the QLAC into their retirement plan platform, but it will happen.

Click here to take a closer look at How Does an Annuity Work Inside of an IRA

Future Social Security Changes are Predicted

My belief is that the QLAC introduction is also a sign that our beloved government is getting ready to change Social Security to keep this guarantee mathematically solvent.

  Don’t be surprised to see “means testing” for payment qualification.  In English, that translates into rich people (however it’s defined) will not receive Social Security.  Or if they do receive a payment, it will be reduced based on perceived or defined need.

In addition, don’t be shocked to see the age requirement to turn on your Social Security payments to increase from the current age of 62 to at least 65 in my opinion.  The QLAC is the government’s somewhat subtle hint to the ever aging population of planning for guaranteed income needs in addition to Social Security.  Just look at it as the government tapping you on the shoulder to “remind” you to plan for lifetime income.

The Importance of Lifetime Income Guarantees

Gambling is an addiction.  Stock market type investing is an offshoot of that for sure.  Return on your investment (ROI) is addicting and never satisfying because you can always make more, right? 

The interesting thing about reality is that it seems to always happen.  The reality with the investment chase and ROI addiction is that eventually, most of us will have to transition our investment from growth to safety and income.  QLAC is going to be the vehicle that will start teaching young workers to plan for future income needs on their own and not just rely on Social Security.

People (and politicians) seem to forget that Social Security was never put in place as an all-encompassing retirement income source.  Too many Americans think otherwise, ​or are incapable of creating additional income.  I always tell people that Social Security is the best “inflation annuity” on the planet because increases are based on politics and not actuarial math.  However, most people need additional income, and QLACs will be able to provide those contractual income needs to both young workers and retired IRA owners alike.

Michael Douglas in the movie Wall Street said: “Greed is good.”  That time has passed, and I (Stan The Annuity Man) proclaim, “Lifetime Income is good!”

Click here to read about and learn QLAC Social Security Strategies