As people continue to live longer, the idea of a secure retirement becomes increasingly important. One retirement tool that has been gaining popularity in recent years is the qualified longevity annuity contract (QLAC). QLACs offer a guaranteed stream of income for life, but like any retirement tool, there are both pros and cons to consider before investing.
Pros:
1. Guaranteed income: QLACs offer a secure stream of income for life. This income isn`t subject to market fluctuations, making it a reliable option for retirees worried about market volatility.
2. Tax benefits: QLACs offer tax-deferred growth, meaning that the money invested in a QLAC isn`t taxed until it`s withdrawn. This can be especially beneficial for retirees in high tax brackets.
3. Preserves other retirement assets: By using a QLAC to generate income, retirees can preserve other retirement assets such as 401(k)s or IRAs. This can be especially important for those worried that they may outlive their savings.
Cons:
1. Limited liquidity: QLACs generally have limited liquidity, meaning that the money invested in them is tied up for a number of years. This can limit a retiree`s ability to access their money if they need it before the QLAC payout begins.
2. Lack of inflation protection: Unlike other retirement tools such as annuities, QLACs generally don`t offer inflation protection. This means that the income provided by a QLAC may not keep up with rising costs of living.
3. High fees: QLACs can come with high fees, which can eat into the income provided by the annuity. Investors should carefully consider the fees associated with a QLAC before investing.
In conclusion, QLACs can be a valuable retirement tool for those looking for a guaranteed stream of income. However, it`s important to carefully weigh the pros and cons before investing to ensure that it`s the right retirement tool for your individual needs.