QLACs: The Unused Gift

QLACs: The Unused Gift

In 2014, the U.S. Treasury Department released new rules around Qualified Longevity Annuity Contracts or QLACs. After an initial increase in utilization, the focus and attention dwindled over the past two years. Today, the sale of all deferred income annuities remains stagnant and far below expectations from 2014. This gift that the government provided remains largely unused in the planning community. 


As I prepared for a presentation recently, I asked our team to update our research on the use of QLACs at different ages and for different risk allocation models. The results were similar to an earlier study we did in 2015. In fact, the results from 2017 are even more convincing for the use of QLACs. Keep in mind the interest rate environment hasn’t changed significantly over the past 24 months. Yet, a fixed instrument was proven to improve the probability of success across many categories. With such a wide improvement, we owe it to our clients to consider this solution in the retirement planning process.  


A Closer Look

Our QLAC study evaluated four asset allocation models: 

  • Aggressive – 80/20 equity-bond allocation
  • Moderate-aggressive – 60/40 allocation
  • Moderate-conservative – 40/60 allocation
  • Conservative – 20/80 allocation


The initial investment started at ages 55, 60, 65 and 70. We looked at placing a $500,000 portfolio in each of the allocations. Each portfolio began a reasonable distribution of income beginning at age 70. For each allocation strategy, there was a probability of success of having $1 left in the portfolio at ages 90, 95, and 100. 


Next, we placed a QLAC at each one of those ages and allocation strategies. The annuity began paying out at age 80. With QLACs, you can tend to change income start dates five years before and after the initial requested start date – this gives the client a 10-year window if their needs change. So, there are 48 results cells between ages 55, 60, 65 and 70 in the four different allocation strategies when we look at longevity at 90, 95, and 100. In every one of those 48 cells, the study found that a QLAC improved the probability of success. What surprised me was the fact that some of the largest improvements in success rates happened when a QLAC was purchased at younger ages.  


A Change in Mindset

Too often, we think of QLACs as a way to push required minimum distributions down the road. Instead, we need to initiate a conversation about this solution in order to mitigate the risk of longevity. In doing so, we reduce some of the concerns our clients have about running out of income during their life. We clearly help some of our younger, more conservative clients in the process.  


Winning Strategy

Take the time to evaluate the use of deferred income annuities in the planning process with clients. Their best interests might be served by providing guaranteed income later in life. Our study shows that you can engage a client and have a high probability of helping them improve their retirement outcomes. 


For more information about the assumptions and results of our QLAC study, call Ash Brokerage at 800-589-3000. Ask for our annuity sales desk and tell them you want to know how you can improve the probability of success for your clients.  


About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.