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Make Your Money Last a Lifetime

Act now to ward off later-in-life financial woes

Chatzky: Longevity annuities

R. Kikuo Johnson

A qualified longevity annuity contract (QLAC) is a investing vehicle that pays you a set amount of money for the rest of your life.

En español | What about retirement scares most people? Outliving their resources, according to surveys from Merrill Lynch and Wells Fargo, among others. Facing down this fear means taking action — and the sooner the better. Here's a plan.

Set up a safety net

Last year, the Treasury Department OK'ed using up to 25 percent or $125,000 (whichever is less) of the total money in your traditional IRA or participating 401(k) accounts to buy a qualified longevity annuity contract, or QLAC (pronounced "Q-lack").

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This is an annuity to be used as longevity insurance. You pay a lump sum to an insurance company, which then invests it and agrees to pay you a set amount of money regularly for the rest of your life. With a QLAC, you buy it when you're 50 or 60, but the payments don't start for at least a decade or two. The benefit, explains independent annuity expert Stan Haithcock of Ponte Vedra Beach, Florida, is that the money placed in a QLAC isn't taxed — it isn't counted when calculating required minimum distributions from your IRA or 401(k). The payments from the annuity, however, will be taxable.

Focus on income and growth

Now that you've got your really old age covered, you can focus on the next decade or so. Divide your retirement expenses into necessary and discretionary, and plan to pay for the necessary ones with guaranteed income such as Social Security and pensions.

If those sources are not enough to take care of these costs, consider an annuity, suggests Walter Updegrave of He recommends a straightforward type that offers payments right away, either on just your life or on yours and your spouse's.

Last, to help keep up with inflation and to provide some growth, invest any assets not essential for covering your living expenses. Most retirees can start with a 50-50 mix of stocks and bonds, Updegrave says.

—With additional reporting by Arielle O'Shea

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