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The Hidden Impact of QLACs

Posted By Michael J. McGlothlin, CLU,ChFC,CFP,LUTCF, Thursday, May 10, 2018
Soon after Qualified Longevity Annuity Contracts (QLACs) were created in 2014, we put them to the test in a vigorous study. And, we’ve repeated that study every year since. 

Here’s what we’ve learned: While QLACs continue to offer an incentive for pushing required minimum distributions (RMDs) out to age 85 and one month, there are other benefits to consider. In every year that we’ve done the study, a few key takeaways have remained consistent.

QLACs improve retirement outcomes. In our 2018 study, we applied QLACs to four different traditional asset allocation strategies in four different age groups, using market projections from 35 investment advisors. Amazingly, a QLAC improved the probability of success in 100 percent of the scenarios we tested.1 In our earlier studies, when we used past performance of the S&P 500 and Barclay’s Aggregate Bond Index, QLACs improved the probability of success in 95 percent of scenarios. Regardless of projected or past performance, the placement of a QLAC has proven to be a great enhancement in nearly every asset allocation plan.

Younger, more conservative clients benefit the most. In our analysis, the largest improvements have been in younger and more conservative client scenarios. We see significant improvements when a QLAC is placed at age 55 or 60 with an asset allocation of conservative and moderate-conservative. Too often, we look at QLACs as a tool to simply push RMDs down the road. But guaranteed income, i.e., not running out of money in retirement, is the bigger story. We often overlook the benefits of guaranteed income in portfolios and this study proves the positive impact.

Guaranteed income changes the conversation. If you’re not already looking at the value of QLACs – or other guaranteed income products – then you’re doing yourself a disservice. With our JourneyGuide™  software, we’ve discovered that guaranteed income not only changes the mathematical outcome of retirement, but it also changes your client relationships. With a tool like JourneyGuide, you can have meaningful, interactive planning sessions to show clients the positive impacts that small changes can have on their portfolios. In many instances, the implementation of guaranteed income allows the client to be more aggressive with their other assets. This adds advisor gamma to the relationship that would otherwise be lost. 
Winning Strategy
The hidden value of QLACs is guaranteed income. We’ve proven that regardless of allocation, the impact of guaranteed income is significant – even more so with younger investors. I encourage everyone to look at your younger clients and begin placing guaranteed future income in their portfolios. That will, in turn, allow you to have a conversation around their remaining assets or capture more assets and invest them more aggressively to maximize long-term growth potential. 

1Ash Brokerage, “2018 Study: QLACS Improve Probability of Retirement Success,” March 2018:

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