6 reasons to get a QLAC (It’s not a duck, but a Qualified Longevity Annuity Contract)

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Buying an annuity within your IRA or your 401(k) is like turning your retirement savings into an old-fashioned pension.

Who doesn’t want a pension? Consider these two approaches that a 65-year-old woman might take:

  1. Withdrawing 4 percent from a retirement account. Let’s say Martha has $500,000 in savings in her IRA. Beginning at age 65, she can spend about 4 percent of her nest egg annually, or $1,666 per month, and not worry too much that her money will run out, even if she lives another 30 years, according to a general rule espoused by many financial planners.
  2. The annuity option. If instead she spends $125,000 of her IRA savings on a Qualified Longevity Annuity Contract, or QLAC, then at age 85 she’ll have a guaranteed monthly income from that annuity of about $3,300, or nearly $40,000 a year, according Fidelity’s calculations. That monthly check will last for the rest of her life — even if she lives to be 120. In the meantime, she can invest the remaining $375,000 of her retirement account more aggressively and spend it a little more freely because she can count on that future income, assuming she lives to age 85.

Which would you choose — the self-managed retirement approach or the QLAC pension? Unsure? Here are 6 reasons to consider getting a QLAC.