1. Deferred Income Annuities and QLACs
Matthew Kelly, RICP
Regional Vice President, Guardian Retirement Solutions
October 20, 2016

2. What is a Deferred Income Annuity?
Non Guaranteed Living Benefits Income Annuities
Guaranteed Income
Flexibility or Liquidity

3. What is a Deferred income annuity( DIA)?
“Getting the most, from the least”
A fixed Income Annuity, similar to a SPIA, but deferred from 2-40 years
Flexible Premium
Typically Offers Flexibility in changing your income start date
Return of Premium Typically available prior to Income Start Date

4. What is a Deferred Income Annuity?
A pure distribution vehicle
Pure Annuitization
No fees, no cash value
Payments comprised of: Premium, Interest and Mortality Credits
Available in qualified, NQ and QLAC markets
Payments are taxed as ordinary income
Non-qualified payments receive exclusion ratio

5. What is a Deferred Income Annuity?
Settlement options include:
Life only, Life with a Guaranteed Period, Life with Refund
Joint Life Options
COLAs
Fixed or CPI
Few Offer a Period Certain Only Option

6. Why are DIAs becoming so popular?
Clients are living longer than ever
Life expectancy is typically from birth
Once you reach retirement age the chances of living longer (see next slide)

7. Why Are DIAs Becoming so popular?

8. Why are DIAs becoming so popular?
Retirees are 6.6 Trillion Dollars Underfunded in the US
Source: Boston College's Center for Retirement Research, 2010 – Retirement USA study

9. Why are DIAs becoming so popular?
US pension crisis
Fewer Defined Benefit Plans
Increased Defined Contribution Plans
17% of Fortune 100 companies offer a DB plan,
In 1998, 68% offered a DB plan
Source: BLS: The last private industry pension plans: a visual essay

10. DIA Sales for 2014
Source: LIMRA Individual Annuity Yearbook 2014

11. Who is an ideal candidate?
Clients who seek to generate the maximum income
Pre-Retirees who look to convert savings/assets to a guaranteed income stream
Conservative investors
Clients not able to participate in Employer sponsored defined benefit plans
Income on DIA products can start between two to 40 years from issue, but most DIAs are elected with an income start date between five to 15 years from issue.  
The average DIA buyer profile resembles that of buyers of variable annuities and fixed-indexed annuities with living benefits. The average DIA buyer is in their late 50s, with most DIAs being purchased by buyers ranging from their early 50s to mid-60s.
Across the industry, the average income deferral period for DIA products is eight years.
*Souce: IRI: Deferred Income Annuities: Insuring against Longevity Risk

12. Qualifying Longevity Annuity Contract
QLAC
Qualifying Longevity Annuity Contract

13. What is a QLAC
July 1, 2014 the US Department of the Treasury and the IRS issued their final regulation regarding longevity annuities/DIAs, making them accessible to DC plans and IRA markets.
Section 401(a)(9) of the IRS code requires distributions from a DC or IRA account to begin by age 70.5, sooner than Longevity annuities normal start dates
With the new regulations, QLACs are exempt from required minimum distributions within prescribed parameters
BY using a QLAC registration on a DIA, clients can defer taxes, create longevity insurance
Source: DCIIA: QLAC Frequently Asked Questions

14. QLAC Markets 401(a)- including 401(k) 403(b)
Eligible governmental 457(b)
Individual Retirement accounts (IRAs)

15. Limitations The lesser of $125,000 OR 25% of IRA balance
Maximum deferral of the contract holder’s 85th birthday
Can start before age 85
Payments are fully taxable when income begins
Inherited IRAs, Roth IRAS are excluded from QLAC eligibility
Settlement Options:
Life only
Life with Cash Refund
Joint Life
Joint Life with Cash Refund
No Period Certain Options/ MUST have a life contingency
Return of Premium during deferrals are optional

16. Reporting
Clients must work with their financial professional and tax advisor to ensure compliance
If over funded they will need to work with insurance carrier
Reporting done via form 1098-Q

17. Important considerations regarding limits

18. Implementing a DIA or QLAC into a Client’s Retirement Plan

19. QLAC RMD Deferral strategy
No QLAC
Max QLAC (125k)
Present Value of IRA
$500,000
$375,000
Future Value*
$823,505
$617,629
RMD Factor at 70.5
27.4
RMD at 70.5
$30,054.93
$22,541.2
By utilizing the QLAC and starting payments at 85, the client has reduced their taxable income at age 70.5
Great strategy for clients who do not need income from their IRA or who want to defer their taxable obligations
*Assumes 10 year deferral at 5% growth

20. QLAC Creates a ‘backstop’ in retirement planning
By having a high level of guaranteed income later in retirement and a known start date, you can more aggressively spend down your assets in retirement.
For example. Knowing you have a fixed income starting at age 80 or 85, you can be confident in a withdrawal strategy knowing you can spend down your assets because a lifetime income stream will begin.

21. Create a ‘backstop’ in retirement planning
Client has an IRA Balance of 500k
$125k QLAC Purchase with income to start at age 85
Life with Refund Payout Generates $31,588.08
The remaining 375k can be spend aggressively over the next 15 years

22. Building a Personal Pension

23. Conclusion
A DIA can be a valuable tool in a client’s retirement Plan by creating lifetime income and eliminating Longevity Risk
A QLAC is powerful tool for clients who want do defer taxes and create lifetime income stream
With the current Retirement Crisis, advisors can help clients maximize their retirement income by utilizing DIAs.
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