Pairing a TIPS Ladder With a QLAC to Solve Longevity Risk

Full analysis

A listener described a retirement income strategy that combines a TIPS (Treasury Inflation-Protected Securities) ladder — individual inflation-linked government bonds purchased to mature year by year and cover a spending gap — with a QLAC (Qualified Longevity Annuity Contract, a deferred income annuity held inside an IRA) to address the key weakness of any finite ladder: outliving it. The listener's ladder runs through age 79, and at age 75 he plans to use approximately $175,000 to buy a QLAC that begins paying at 80, picking up where the ladder ends. Chris Stein ran illustrative numbers using a $100,000 example: a 75-year-old Illinois male buying a QLAC from an A-rated insurer today could receive about $16,000 per year starting at 80. By contrast, if he held that $100,000 for five years at an assumed 3% annual return, it would grow to roughly $116,000 — but buying a single-premium immediate annuity (SPIA, an annuity that begins paying right away) at age 80 with that sum would yield only about $13,600 per year, a $2,400 annual shortfall. To match the QLAC's $16,000 payout via a later SPIA purchase, the money would need to earn 6.34% annually during the deferral period. The hosts noted that committing to the QLAC at 75 earns the buyer significant 'mortality credits' — the pooled benefit from other annuity holders who die before collecting — which a deferred purchase cannot recapture.