Qualified Longevity Annuities

Crown Atlantic – Email Article on Qualified Longevity Annuity Contracts

Crown Atlantic Insurance, a national insurance and annuities company, needed some articles to be sent to their email subscribers. Their focus was on marketing to Baby Boomers who were approaching retirement age or thinking about life insurance, and their primary concern was that the copy we produced be entirely compliant with regulatory rules. On this piece, we needed to meet the requirements of insurance marketing and annuities marketing (which is governed by the SEC).

Qualified Longevity Annuity Contracts

An American man who makes it to the age of 65 today can expect to live until the age of 84 or later, and women can expect to live until almost 87. About one of every four of those 65-year-olds will live beyond the age of 90, and one in ten will survive past the age of 95.i Today’s 65-year-olds are also more likely to remain active and working. In 1995, the average age of retirement in the United States was 60; in 2015, it was 66.ii These trends aren’t new, and they’re not expected to go away any time soon.

Advances in medical technology, changes in the way we do our work, and fluctuations in the economy mean that people are living longer and retiring later as time marches on. If you’re planning to finance your retirement with an IRA, a 401k, or a 403b, you can start taking your distributions at any time, but you must start taking your required minimum distributions (RMDs) when you turn 70 ½. If you wait until the age of 70 to take distributions and you’re one of the lucky ten percent who lives to be 95 of older, your retirement must last you at least 25 years.

If you know in advance that you’re going to live to be 90, you can build your income strategy with that in mind. But what happens to people who plan their retirement to last 20 years and then live to be 100? Fortunately, there is a way to help make sure that your retirement income lasts as long as you do.

Qualified Longevity Annuity Contract

A qualified longevity annuity contract (QLAC) is an annuity product that helps ensure that retirement income lasts as long as retirement. With a traditional retirement account (like an IRA, 401k, or 403b), you cannot avoid taking your required minimum distributions once you hit 70 ½, regardless of whether you feel that you need it or not. When you convert part of your traditional retirement account into a QLAC, you are purchasing an annuity which kicks in when you reach a specified age. With a QLAC, your annuity payments could continue for the rest of your life, regardless of how long that is. A longevity annuity could theoretically be purchased with after-tax dollars, but for many people who are approaching retirement, their retirement savings are largely held in retirement accounts that provide beneficial taxation. Until 2014, longevity annuities could only be purchased with after-tax dollars, but the Treasury Department made some adjustments that allow people to purchase a QLAC with their qualified retirement dollars.

What makes it qualified?

In order to qualify as a QLAC, an annuity must meet certain requirements.

  • You can’t put in more than 25% of an employment retirement plan (401k or 403b), or more than 25% of all pre-tax IRAs, into a QLAC.
  • You can’t put in more than $125,000 OR 25% (whichever is less). The $125,000 may change with inflation, so check with your financial advisor for the most current restrictions.
  • Each spouse who has their own retirement accounts may devote up to the limitations; these are individual limitations and not joint.
  • Payouts must begin by the age of 85 or earlier.
  • QLACs must have fixed payouts; they can’t use variable or equity-indexed annuities. However, the QLAC may have a provision for a cost-of-living adjustment.
  • The QLAC must be irrevocable, which means that you can’t surrender it for cash after it’s purchased. Some QLACs have a return-of-premium death benefit that’s paid to your heirs.

Advantages of a QLAC

When your required minimum distributions (RMDs) are distributed, the value of the QLAC is excluded from that calculation. This can help a retiree to hang on to a larger portion of the retirement account, as it reduces the amount of RMDs required. When a retiree reaches the age at which the QLAC begins making payments, the QLAC payments will not count for a retiree’s RMDs. As long as their retirement account is still funded, they will be receiving their RMDs and their QLAC payment for the same time period. A QLAC can supplement your current retirement strategy to help ensure that you don’t outlive your retirement dollars.

Disadvantages of a QLAC

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Is a QLAC right for me?

If you’re considering a QLAC, your best option is to consult with your local annuities agent, or your personal financial advisor. These professionals can look at your retirement strategy and give you individual, tailored advice for your specific needs and objectives.

However, you might consider getting a QLAC if:

  • You have a family history of living past the age of 85
  • You have reason to believe that your medical or living costs may increase after the age of 85
  • Your retirement account may not have the money available to pay for your living expenses for more than 10-15 years
  • You have a strong desire to remain in your own home for the rest of your life and do not want to be forced into a nursing home or living with family because your retirement account runs out
  • You intend to remain active and retain a similar lifestyle as you age and want to ensure that your retirement account can support that
  • You do not have children who are financially capable of supporting you if you outlive your retirement income, or you do not want to ask your children for financial support if that happens

Learn More

To find out more about a QLAC, you can contact your Crown Atlantic agent for a free, no-obligation consultation.

i Social Security Administration, https://www.ssa.gov/planners/lifeexpectancy.html

ii Gallup, http://www.gallup.com/poll/168707/average-retirement-age-rises.aspx

 

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Mortgage House Email

Mortgage House, Email to Commonwealth Bank Customers

 

Mortgage House is an Australian mortgage lender. The work that I did for Mortgage House was challenging on two levels. First, as a mortgage lender, it’s a heavily regulated industry that requires careful attention to detail in order to ensure regulatory compliance. Second, it was an Australian company, which required extensive research to ensure compliance with Australian laws (which differ slightly from US requirements).

In this piece, I was asked to create an email sales letter that would be sent to the customers of their competitors in an attempt to encourage refinancing.

Subject:

    • Is Commonwealth Bank frustrating you?
    • Is your mortgage making you unhappy?
    • Are you unhappy with Commonwealth Bank? Read on.
  • Unhappy with your Commonwealth Bank mortgage?

Dear <Name>

Frustrated with trying to look up your mortgage online?

Frustrated with computer outages?

Frustrated with poor customer service when talking to a banker?

It’s not you

On ProductReview.com.au, Commonwealth Bank has an average rating of 2.5 out of 5. 

<h2> Perhaps, it’s time you found a better mortgage lender?</h2>

Mortgage House has a customer rating on ProductReview.com.au of 4.5 out of 5 and we’re one of Australia’s leading non-bank lenders. We’ve been around for 30 years and, in this time, we’ve helped thousands of Aussies switch over from one of the big banks.

We can help reduce your interest rate, cut your monthly repayment, AND eliminate your annual and package fees all at the same time. And we’ll do so with a smile.

<h2>How We Can Save You at Least $25,000!</h2>

Depending on the loan package you select, you could save more than $25,000 with us. Commonwealth Bank currently has their interest rates for variable rate home loans set at around 4.75%, while ours is 3.95%.  

To put that into dollars and cents, a $150,000 home loan with Commonwealth Bank will cost you about $1,018 a month for the next 20 years.<sup>1</sup> A similar loan with Mortgage House can cut your monthly repayments by more than $100 – a difference of $25,000 over the life of your loan!

Want to save even more? We usually won’t charge you a $600 package fee or a $395 annual fee. Yet you will still get the same convenient ATM and online access.

<h2>What Mortgage House Can Do For You</h2>

Mortgage House is not a jack-of-all-trades bank. We ONLY do mortgages, and we do them well. We’re not going to try to sell you on a bunch of other banking products that you don’t need. We’re only going to help you find the right home loan for your needs.

<h2>What would it take?</h2>

We know that the idea of refinancing your mortgage may seem like a hassle. We will work with you in person to make the process as easy and painless as possible. If you could save $25,000, wouldn’t that be worth a look?

(( Help Me Save On My CommBank Home Loan ))

<footnote>

1. Based on a 20-year loan at interest rates current as of September 15, 2015 where the customer pays principal and interest rates. Commonwealth Bank’s rates are taken from their Standard Variable Rate mortgage and Mortgage House’s rates are taken from our Advantage Variable Rate mortgage; both assume an owner-occupied home.

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