How to Calculate QLAC Benefits for Longevity Protection in Retirement

A QLAC Pays You When Other Assets Are Gone

A Qualifying Longevity Annuity Contract (QLAC) is a deferred income annuity purchased inside a traditional IRA or 401(k), funded with pre-tax dollars, and designed to begin payments at a future age, typically 80 or 85. The IRS excludes the QLAC premium from Required Minimum Distribution calculations until income begins. That exclusion is the first financial benefit. The guaranteed lifetime income stream is the second.

The core calculation requires three inputs: the premium paid, the projected monthly income at the start date, and your life expectancy beyond that start date. Once you have those, you can determine your break-even age and compare the QLAC against the alternative of keeping the same dollars invested in the IRA.

The QLAC Purchase Limit After SECURE 2.0

The IRS sets the maximum QLAC premium at $200,000 as of 2024, indexed for inflation. Before SECURE 2.0, the limit was the lesser of $145,000 or 25% of your aggregate IRA balance. For a retiree with a $900,000 IRA, the old rule capped the QLAC at $145,000. The new flat $200,000 limit applies regardless of total IRA balance, which materially changes the calculus for high-balance accounts.

A retiree with $1.2 million in a traditional IRA can now shelter $200,000 from RMDs immediately. At the IRS's Uniform Lifetime Table, a 72-year-old with a $1.2 million IRA owes an RMD of roughly $43,800 in year one. Excluding $200,000 from that balance reduces the RMD base to $1 million and cuts the year-one RMD to approximately $36,500. The tax deferral on that $7,300 difference compounds over the years between purchase and income start.

How to Calculate Your Monthly QLAC Income

Insurers price QLAC payouts based on your age at purchase, the income start age you select, your gender, and prevailing interest rates. The longer you defer income, the higher the monthly payout. A 65-year-old woman investing $130,000 in a QLAC with income starting at age 85 can expect approximately $2,900 to $3,400 per month for life, depending on the insurer and the rate environment at purchase.

The calculation for projected total income is straightforward:

Monthly Benefit x 12 x Years of Expected Payments = Projected Lifetime Income

Using the midpoint of $3,150 per month, with a life expectancy to age 92 (seven years of payments):

3,150 x 12 x 7 = $264,600 in total projected income from a $130,000 premium.

That is a nominal return ratio of 2.04x the premium. The annualized internal rate of return on this cash flow stream, calculated as the discount rate that equates the $130,000 lump sum to the present value of payments starting 20 years later, runs approximately 4.8% to 5.6% for women and 3.9% to 4.7% for men, reflecting gender-based life expectancy differences in insurer pricing.

Worked Example 1: The 65-Year-Old with a $750,000 IRA

A 65-year-old man holds $750,000 in a traditional IRA. He purchases a QLAC for $200,000 with an income start date of age 82. His insurer quotes $3,800 per month, or $45,600 per year.

RMD deferral benefit: Removing $200,000 from his RMD base at age 73 reduces his first RMD by approximately $7,100 (using a 28.1 distribution period). At a 24% marginal rate, that defers $1,704 in federal tax in year one alone. Over nine years of deferral, the cumulative tax deferral, without compounding, exceeds $15,000.

Break-even calculation: He divides the $200,000 premium by the $45,600 annual benefit. Break-even occurs at 4.39 years of payments, or age 86.4. Any year he lives beyond 86 produces net positive income relative to the premium paid. Social Security Administration data shows a 65-year-old man has a 43% probability of living to age 85. The QLAC positions him against the risk of being in that surviving 43%.

Worked Example 2: The 70-Year-Old Couple Using Spousal Continuation

A married couple, both age 70, purchases a joint-life QLAC for $175,000 with income beginning at age 83. The insurer quotes $2,600 per month with 100% spousal continuation. The lower monthly amount versus a single-life contract reflects the joint survival probability.

Total projected income to age 90 (seven years at the base start date): 2,600 x 12 x 7 = $218,400.

If the primary annuitant dies at 85 and the spouse lives to 93, payments continue for ten additional years: 2,600 x 12 x 10 = $312,000 in spousal continuation payments. Combined lifetime income reaches $530,400 from a $175,000 premium. The joint-life internal rate of return in this scenario exceeds 6.1%.

The couple also removes $175,000 from their combined IRA RMD base for 13 years. At their combined 22% effective tax rate, the deferral reduces taxable RMDs by approximately $6,200 annually, or $80,600 over the deferral period before accounting for investment growth.

What QLAC Math Cannot Capture

The break-even analysis above assumes the insurer remains solvent and pays as contracted. State guaranty associations cover annuity claims up to $250,000 in most states, but coverage limits vary. Buyers should confirm their state's limit through the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) before committing a premium above that threshold.

The analysis also does not account for inflation erosion. A fixed $3,150 monthly payment in 2044 has less purchasing power than in 2024. Some QLAC contracts offer a cost-of-living adjustment rider, typically adding 2% to 3% annually to the payout, but that reduces the initial monthly income by 20% to 30% relative to a flat benefit. Run the inflation-adjusted version separately and compare the two income streams at age 88 and age 92 to determine which serves you better.

Use the CalcMoney Retirement Calculator to Model Your QLAC

Insurer quotes vary by 15% to 22% for identical inputs across carriers. Calculating the internal rate of return on multiple quotes, across different income start ages, in the same session is the only way to identify the optimal contract for your balance sheet.

The CalcMoney Retirement Calculator lets you input your IRA balance, projected QLAC premium, income start age, and assumed life expectancy. It outputs your break-even age, projected lifetime income, and the RMD reduction for each year of the deferral period. Run your numbers against two or three insurer quotes before you commit to any single contract.

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Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.