MetLife’s announcement today that it had entered the individual qualifying longevity annuity contract (QLAC) market offers advisors and their clients more retirement income flexibility. This comes as millions of baby boomers become subject to required minimum distribution (RMD) rules beginning next year.
MetLife’s individual QLAC is built on the company’s Guaranteed Income Builder deferred income annuity chassis. It will be distributed by MetLife’s Premier Client Group and third-party advisors.
“Advisors are excited about QLACs because they give advisors flexibility about where (clients) get their income,” Liz Forget, executive vice president of Retail Retirement & Wealth Solutions at MetLife, said in an interview with InsuranceNewsNet.
With many people working past age 70, they’re not depending solely on a retirement plan for living expenses, she said, so they don’t have an immediate income requirement.
She said advisors and distributors in the field are asking MetLife for the best way to incorporate QLACs into financial planning models. “There’s some complexity about how much to put into the QLAC and if you have more than one IRA (individual retirement account), there’s a training component to this with advisors,” Forget said.
QLACs offer advisors and clients flexibility in the following way.
Take a retiree with $500,000 in a single IRA account. Now, imagine that retiree withdraws 25 percent or $125,000 out of the IRA and moves it into a QLAC.
Assuming a 4 percent RMD, the retiree at 70.5 years old would take 4 percent – or $15,000 - from a balance of $375,000. Without moving the funds into the QLAC, the retiree would take a 4 percent RMD – or $20,000 - from $500,000.
The 4 percent distribution of a lower base means lower taxes.
Next year will prove to be a watershed moment for RMDs from retirement plans as Americans born in 1946 — the first year of the baby boom — will be required to begin withdrawing from their retirement accounts.
Many people will see their taxable income rise as RMD rules suddenly apply and as later boomers turn 70.5 and progressively rely more on defined contribution plans to fund their retirements.
“Even though RMD rules require that individuals begin taking distributions from IRAs once they reach 70.5, not everyone will need these funds at that stage of their life,” Forget said. QLACs allow clients to defer income up to age 85.
Forget said that QLAC experts are in the midst of getting their arms around requirements issued by the U.S. Treasury Department, which authorized QLACs last year. Questions remain about rules and processes around joint contracts.
MetLife’s announcement Monday applies only to individual QLACs, not joint contracts. The company had announced a QLAC for the institutional market in May.
“We’re encouraged in the industry that the Treasury sees value of these types of annuities and the opportunity for individuals to create a pension for themselves and get tax incentives to do so,” Forget said. “That’s encouraging, particularly with the all the noise around variable annuities and the Department of Labor and the industry as a whole.”
Insurance companies can differentiate themselves from other financial services companies through the use of QLACs.
Life and annuity carriers have launched QLACs over the past year since the Treasury gave the product the green light last July.
Other carriers with QLACs include AIG, Americo Financial Life & Annuity, First Investors Life, Lincoln Financial, Pacific Life, Principal Financial and Thrivent Financial.
New York Life and Northwestern Mutual were expected to launch QLACs sometime this summer, and Guardian was expected to launch a QLAC later this year. MassMutual is said to be evaluating the market.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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