If you plan to use your dividend stocks to generate income in retirement and have concerns that you may live longer than your money lasts, there is a little-known and little-used investment that can help allay your worries.
The investments are QLACs, or Qualified Longevity Annuity Contracts, which come with the additional benefit of a government-supported tax break. Here’s how they work.
A Tax-Favored Annuity
QLACs are a wrinkle on deferred income annuities, or DIAs, which are annuities for which you pay a lump sum now and start receiving lifetime income sometime in the future. The attraction of DIAs is that by waiting to start drawing the income, you get a lot more income when you start receiving it.
For example, let’s say a 70-year-old man bought an immediate annuity with $100,000.