Early in my mountaineering career I discovered that a handful of ginger on the pre-summit push rest stop provides a sustainable burst of energy with no residual crash. I’ve never climbed without a bag of ginger since that wonderful revelation occurred! An experienced climber uses every technical, nutritional and directional advantage available to survive mountain hazards and reach the finish line, which is a warm car. Dodging retirement pitfalls like market and interest rate risk, sequence of returns and longevity risk, inflation and tax-hike risk, and long-term care risk, is no easier, though effective risk mitigation strategies avail. Consider the redeeming qualities (and understand the shortfalls) of a qualified longevity annuity contract (QLAC) as you strategically plan the later income years of your own retirement.
- A QLAC is a special type of deferred annuity you can buy with money from a tax-deferred retirement account (like a traditional IRA or 401(k)). Its main purpose is to provide a fixed source of income later in life, typically starting as late as age 85.
- Money used to buy a QLAC may be excluded from RMD calculations until payouts begin (up to age 85). This can lower taxable income in one’s 70s and early 80s. Maximum contribution is $200,000 or 25% of eligible retirement funds (whichever is less).
- Helps protect against longevity risk (exceeding life expectancy and having to fund the extra years) by providing a guaranteed lifetime income source.
- Tax deferral of QLAC dollars (until income begins) tends to lower taxable income, which can expand strategic Roth Conversion opportunities and other savvy tax maneuvers.
- QLAC’s offer market risk mitigation, since future payments are guaranteed.
- QLAC income complements Social Security to layer income sources and match them with future expenses. Research suggests retirees are happier spending a permanent source of income (like a pension) as opposed to selling assets to create income (like a systematic withdrawal program). They are more confident and content, and they spend more than those using a systematic withdrawal (who actually underspend as a group).1
- QLAC income is generally received in one’s later years, when inflation is felt most and expenses escalate amidst health declines. That ginger sure comes in handy at high camp! It can be harder for elder abuse to occur when income streams are passive.
There’s no downside to ginger that I know of, but few things on this earth consist of all positives. QLAC’s reduce liquidity, offer no inflation-fighting upside on invested capital (in an inflationary culture), and actually increase inflation risk (since income payments don’t generally rise). Also, if the retiree passes before income payments begin a loss of capital can occur (unless a return of premium option is purchased).
A QLAC may be well suited for retirees worried about outliving their savings, for those with very large Traditional Retirement account balances, and for those who seek retirement income certainty.
God bless your retirement income planning efforts!
Shaun.
“In an abundance of counselors there is safety” ~Proverbs 11:14
1 The College of America, Retirement Income Certified Professional RICP®, December, 2025
Disclosure: Old Forge Wealth Management, LLC is a registered investment adviser. This material is for educational purposes only and is not individualized investment, tax, or legal advice. Any guarantees referenced are subject to the claims-paying ability of the issuing insurance company. Tax rules are complex and subject to change, and the tax treatment of a QLAC (including any impact on RMD calculations) depends on individual circumstances. There is no guarantee that any strategy will be successful. Consult your financial, tax, and legal professionals before implementing any strategy.