Despite sounding like a creature from a Star Wars movie, a QLAC is actually a tool that can be very helpful in funding a prolonged retirement. QLAC is an acronym for a Qualified Longevity Annuity Contract. QLAC’s provide guaranteed monthly payments until death and like many other annuity contracts are shielded from the fluctuations of the stock market. Further, a properly designed QLAC can help to manage one’s Required Minimum Distributions from Individual Retirement Arrangements (IRA’s). In doing so, the QLAC may also allow its owner to reduce his/her lifetime income tax bill.

“Two roads diverged in a wood, and I—I took the one less traveled by, and that has made all the difference” Robert Frost

Our lives are shaped by the everyday choices we make. The quality of our retirement is shaped by our choices, even more than at any other time of our lives.

Our look back into history will touch on the origin of retirement savings accounts which enjoy income tax advantages over ordinary savings vehicles such as savings accounts and taxable brokerage accounts. We’ll cover traditional IRA’s (individual retirement arrangements in IRS parlance) as well as SEP, SIMPLE and Roth IRA’s. Prior to the introduction of these tax-preferenced vehicles, retirement savers looking for a tax break were basically limited to insurance products. Permanent insurance, such as whole life has been around for centuries as well as various insurance annuity products. These vehicles have long enjoyed the postponement of income taxes on the buildup of cash value within the policy. However, their use was hampered by high internal expenses and the compromises associated with trying to use the same product to accomplish two goals (death benefit + retirement savings).

This fourth posting on pre-retirement considerations will depart from the realm of finance and discuss the emotional side of leaving the workforce. Many people believe that adequate financial preparation automatically equals a successful retirement but still others would disagree. The psychological aspects of modern retirement are being studied in greater depth and financial planning firms are increasingly aware of the need for more than just financial advice.

Our previous posting emphasized the need for those contemplating an upcoming retirement to get a good handle on the amounts they typically spend. Doing so provides a “burn rate” to compare against potential retirement income sources like Social Security, annuity payouts, and portfolio withdrawals. Obviously, the goal should be to assure that the retiree household does not consume all of its resources during the remainder of its existence. This posting will look at the resource side of the ledger.