QLAC: How a Longevity Annuity Can Protect Against Outliving Your Money

The central fear of retirement planning isn't dying too early — it's living too long and running out of money. A 65-year-old today has a meaningful probability of living into their mid-80s or beyond. Planning for a 30-year retirement is increasingly the norm, not the exception.

One tool specifically designed for this risk is the Qualified Longevity Annuity Contract, or QLAC. It's not widely known outside financial planning circles, but it addresses a real problem with an elegant structure: you use a portion of your IRA money to guarantee income that starts late — at 80, 82, or 85 — precisely when your other assets might be running low.

What Is a QLAC?

A QLAC is a type of deferred income annuity that you purchase with pre-tax retirement funds (IRA or 401(k) money). You pay a lump-sum premium today, and in exchange, the insurance company promises to pay you a fixed monthly income starting on a future date you choose — typically between age 72 and 85.

The IRS set specific rules for QLACs to qualify for special tax treatment:

• Maximum premium: $210,000 (2025 IRS limit, inflation-adjusted annually)
• Source: Must be purchased with qualified (pre-tax) IRA or 401(k) funds
• Income start age: Must begin by age 85
• RMD exclusion: The QLAC balance is excluded from your RMD calculation until income begins

That last point — the RMD exclusion — is one of the QLAC's most underappreciated benefits.

The RMD Reduction Benefit

Required Minimum Distributions are calculated on your total pre-tax account balance each year. A $1,000,000 IRA at age 75 generates an RMD of roughly $43,000 — all of which is ordinary income, adding to your MAGI and potentially pushing you into higher IRMAA tiers or tax brackets.

When you purchase a QLAC, the premium is excluded from your RMD base during the deferral period. So if you purchase a $200,000 QLAC at 68, your IRA for RMD purposes is reduced by $200,000 until income begins at 82.

On a $1,000,000 IRA, that's a 20% reduction in your RMD base — translating to thousands of dollars less in taxable income each year during the deferral window.

How QLAC Payouts Work

Payout amounts depend on your age at purchase, your income start age, your gender, and whether you want a survivor benefit (joint life) or inflation adjustment (COLA).

A rough example for illustrative purposes: a 68-year-old male who purchases a $200,000 QLAC today with income beginning at 82 might receive roughly $3,500–$4,500/month for life. (Actual quotes vary significantly by insurer and current interest rate environment — always get current quotes.)

The key tradeoffs:

Feature	Effect on Monthly Payout
Later income start age	Higher payout
Younger at purchase	Higher payout
Male vs. female	Male payout slightly higher (shorter expected lifespan)
Joint life (survivor)	Lower payout (covers two lives)
COLA rider (inflation adj.)	Lower initial payout; grows over time

QLAC vs. SPIA: What's the Difference?

Both are income annuities, but they serve different purposes:

• SPIA (Single Premium Immediate Annuity): Income starts within a year of purchase. Good for generating immediate, predictable income in early retirement.
• QLAC: Income is deferred for 10–20+ years. Good for insuring against longevity risk in the tail end of your plan.

Many retirees who use annuities find a combination makes sense: a SPIA for baseline spending in the early years, and a QLAC purchased in the mid-60s to cover late-life expenses.

When Does a QLAC Make Sense?

A QLAC is worth serious consideration when:

1. You have a large IRA and face significant RMD pressure — the exclusion from RMDs reduces taxable income during the deferral period
2. You have longevity in your family — the longer you live past the income start age, the better the return
3. You want a floor for guaranteed late-life income regardless of portfolio performance
4. You're concerned about cognitive decline reducing your ability to manage investments at 85+

A QLAC is less compelling if you have a shorter life expectancy, need the liquidity, or already have strong guaranteed income (pension, Social Security) that covers your baseline spending.

The Break-Even Age

Like all annuities, a QLAC has a break-even age — the age at which cumulative payments equal the premium you paid. If you die before break-even, you've "lost" money. If you live well past it, the insurer pays far more than the premium.

For a $200,000 QLAC starting at age 82, break-even is typically around age 90–93, depending on the payout rate.

Modeling a QLAC in ModernRetire

ModernRetire has built-in QLAC modeling in the Benefits tab. You can enter your purchase amount, purchase age, and income start age, and the planner will:

• Deduct the premium from your IRA balance at the purchase year
• Exclude the QLAC balance from RMD calculations during the deferral period
• Add the monthly QLAC income to your cash flow starting at the income start age
• Show the impact on your portfolio longevity, lifetime tax, and IRMAA costs

The IRS maximum is $210,000 (2025) — ModernRetire enforces this cap and flags it if your entered premium exceeds the limit.

Key Takeaways

• A QLAC is purchased with pre-tax IRA/401(k) funds and pays guaranteed income starting late in retirement
• The IRS allows QLACs to be excluded from your RMD base during the deferral period (up to $210,000)
• A QLAC trades liquidity for longevity protection — appropriate for long-lived retirees with large IRAs
• Break-even is typically around age 90–93; benefits compound significantly for 95+ survivors
• SPIA covers early retirement income; QLAC insures against late-life depletion — they're complementary

---