Using qualifying longevity annuity contracts, commonly known as QLACs, increases retirement readiness, according to Employee Benefit Research Institute modeling.
EBRI decided to take a closer look at QLACs, which provide monthly benefits after a significant deferral period in retirement, after the IRS issued final rules last year exempting them from required minimum distributions when 401(k) participants hit age 70½.
One EBRI scenario had participants converting 15%, through a 10-year ladder of 1.5%, of a 401(k) balance with a current employer to a QLAC premium.
EBRI found that increases in its Retirement Security Projection Model's Retirement Readiness Ratings ranged from 1.9% for early baby boomers and 3.5% for Generation Xers in the longest relative longevity quartile. These numbers increased to 4.5% and 6.7%, respectively, with a 30% reduction in premiums.