Longevity annuities could boost retirement readiness, study finds

Longevity annuities could boost retirement readiness, study finds
EBRI takes close look at QLACs, which provide monthly benefits after a significant deferral period in retirement.
DEC 04, 2015
Using qualifying longevity annuity contracts, commonly known as QLACs, increases retirement readiness, according to Employee Benefit Research Institute modeling. EBRI decided to take a closer look at QLACs, which provide monthly benefits after a significant deferral period in retirement, after the IRS issued final rules last year exempting them from required minimum distributions when 401(k) participants hit age 70½. One EBRI scenario had participants converting 15%, through a 10-year ladder of 1.5%, of a 401(k) balance with a current employer to a QLAC premium. (More: How advisers can get Gen Yers to take some risk) EBRI found that increases in its Retirement Security Projection Model's Retirement Readiness Ratings ranged from 1.9% for early baby boomers and 3.5% for Generation Xers in the longest relative longevity quartile. These numbers increased to 4.5% and 6.7%, respectively, with a 30% reduction in premiums. http://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2015/12/CI101385914.JPG" “We found that at even at today's interest rates, it was a relatively decent impact” on retirement readiness for people who live longer, said Jack VanDerhei, EBRI research director and author of the report, in an interview. “For employees, it certainly seems a cost-effective hedge against longevity risk.” A second scenario assumed that some plan sponsors would be willing to convert the accumulated value of the employer 401(k) contributions to a QLAC purchase at retirement age, with employees either opting in or opting out. That showed an increase in EBRI's Retirement Readiness Ratings ranging from 6.7% for early boomers to 8.7% for Gen Xers. (More: Is General Motors' 401(k) annuity choice a harbinger for broader uptake?) The IRS change “has basically opened up the whole deferred annuity concept in ways it never had before,” Mr. VanDerhei said. The analysis, “How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?” is available on EBRI's website. Hazel Bradford is a reporter at sister publication Pensions & Investments.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.