How long do you expect to live? As a firefighter, the worries of an early death are constant, either from a workplace incident, work-related illnesses, or even off-duty accidents, which is why many of our articles stress the importance of protecting your family if the worst were to happen. However, we also have to be prepared for a longer-than-expected retirement, and in many ways, the implications of being financially unprepared are perhaps worse than being unprepared when you’re younger.
After all, 60-year-old versions of you or your spouse are much more likely to be able to find work and adapt to whatever situation life throws at you.
Things will be much, much tougher at 90.
The reality is that for a 65-year-old married couple, there’s nearly a 1 in 2 chance that one of you will reach age 90.1 So, at some point, the main challenge shifts away from needing money at early stages when sudden illness or an accident might strike to simply making sure your money lasts as long as you do.
Longevity is a double-edged sword. On one hand, a longer life means more time to enjoy family and the retirement you earned through decades of service. On the other hand, it increases the risk of outliving your savings, especially if you retire relatively young (as many firefighters do) and face 30+ years of expenses. Traditional investment withdrawals could be strained by your late 80s or 90s. So how can you “pensionize” part of your savings to cover that late-life period?
In this article, we’ll break down how a Qualified Longevity Annuity Contract (QLAC) lets you turn a slice of your 457(b) into a potentially guaranteed retirement paycheck well into your later years.
The Qualified Longevity Annuity Contract
A Qualified Longevity Annuity Contract (QLAC) is a special type of insurance policy for your retirement income. You pay an upfront sum from your tax-deferred retirement account, such as your 457(b), 401(k), 403(b), or traditional IRA, to an insurance company. In return, the company promises to pay you (and your spouse, if you choose) a guaranteed monthly income for life, but starting later on, such as at age 75 or 80. Essentially, a QLAC is a deferred income annuity funded with qualified (pre-tax) dollars. It was created by the U.S. Treasury in 2014 specifically to encourage retirees to insure against running out of money late in life.2
What makes QLACs especially great is that the funds you use to buy one are excluded from required minimum distribution (RMD) calculations until the payments begin. Normally, Uncle Sam forces you to start withdrawing (and paying taxes on) traditional retirement accounts by age 73. But money tucked into a QLAC can skip those RMDs until as late as age 85.
This means two big perks for you: (1) you delay taxes on that portion of your 457/IRA by keeping it sheltered longer, and (2) you set yourself up with potentially guaranteed income later in retirement when you might need it most.
Suppose you retire at 60 with a healthy pension and a 457(b) plan. You roll over your 457 into an IRA (or use the 457 directly, if allowed) and use part of it to purchase a QLAC. You pick a starting age (say 80), and until then, that QLAC money just quietly grows (in the insurance company’s hands) and doesn’t count when the IRS calculates how much you have to withdraw each year.
Once you hit your start age, the QLAC starts paying you automatically for life. The longer the deferral period, generally the higher the annual payout you’ll get when it begins. After all, if you wait 20 years for payments, an $X investment can provide a much bigger yearly income than if you started it right away at 60.
Important QLAC Rules
A QLAC must begin payments by age 85 at the latest, per IRS rules.3 You also can’t fund a QLAC with Roth accounts or inherited accounts. Only traditional, pre-tax money qualifies.4 Plus, there’s a cap on how much you can put into QLACs. For years it was 25% of your account or $125,000 (whichever was less), but the rules just got friendlier.
The SECURE 2.0 Act, passed in late 2022, allowed savers to invest up to $200,000 (indexed for inflation) into QLACs, with no percentage limit.5 In 2025, that cap is indexed to about $210,000.6
Turning Part of Your 457(b) into “Longevity Insurance”
So how would you actually use one as a firefighter retiree? Let’s say you have a 457(b) plan with a substantial balance when you retire or change careers. The 457(b) for firefighters is often accessible at retirement without early withdrawal penalties (unlike some other plans), giving you flexibility to roll it over or draw from it as needed. Many firefighters roll their 457 into an IRA upon retirement for broader investment options. This rollover is also the gateway to purchase a QLAC, since not all employer plans directly offer QLAC products.
Here’s one potential strategy. Carve out a slice of your pre-tax savings and use it to buy a QLAC that will start paying in your later years, trading a chunk of your 457(b) balance for a future stream of income. By doing so, you accomplish two things at once: You secure guaranteed income in old age (longevity insurance), and you reduce your taxable RMDs in your 70s, since the money in the QLAC isn’t counted until payouts begin. If you don’t need all of your 457/IRA money in your 60s and 70s thanks to your pension and other income, a QLAC lets you push some of that money forward to your 80s.
Let’s look at an example.
Imagine you’re 60 and have $500,000 in your 457 plan. You’re about to retire from the fire department and you have a solid pension that covers most of your regular expenses. You might roll that 457 into an IRA and decide to use, say, $100,000 to buy a QLAC and choose to have it start payments when you turn 80. That $100K is now out of sight, out of mind for the next 20 years, and, perhaps most importantly, out of the IRS’s RMD calculations.
Finally, fast forward to your 80th birthday.
The QLAC could pay you, as an example, $30,000+ per year for life (exact amount depends on prevailing interest rates and product features). That’s an annual income equal to roughly 30% of the original $100,000 premium.
Not too shabby for insurance that you can’t outlive!
And if you (or your spouse) live well into your 90s, that QLAC will keep those checks coming, no matter what happens in the stock market or with your other savings.
QLAC Income Calculator
EstimateSee how your deferral decision impacts your future income
- Educational estimates only, not a quote or offer.
- Assumes single-life, no refund, no COLA. Riders usually lower initial income.
- Simple growth, discount, and life-expectancy proxies; actual pricing varies by insurer and state.
- QLAC funding is subject to IRS rules and caps; amounts are excluded from RMDs until income begins.
- Not tax, financial, or legal advice.
Of course, you don’t have to wait till 85 or even 80. You could start the QLAC at 75 if you prefer. The start age is up to you, as long as it’s no later than 85. But generally, the longer you delay, the more bang you get for your buck in terms of payout.
Why QLACs Might Make Sense
You’re probably thinking that you already have a guaranteed lifetime income. Perhaps that’s even one of the reasons you became a firefighter. And it’s true that that pension is a huge advantage. But, pension households face a few unique risks that QLACs can help mitigate:
Inflation Erosion
Many fire pensions do not have robust COLAs (cost-of-living adjustments). Some have a fixed 2-3% COLA, and others have frozen or eliminated COLAs altogether. If your pension pays a fixed $3,000/month today, that might feel comfortable now, but 20 years of inflation can whittle it down to essentially peanuts compared to its original purchasing power. Looking at you, New Jersey! (New Jersey famously suspended pension COLAs in 2011; a firefighter who retired that year has lost at least 25% of their purchasing power by now due to inflation.)7 protectionred.com
Tax Management
If you have a sizable 457/IRA, those RMDs in your 70s could shove you into a higher tax bracket or increase Medicare premiums. By moving a chunk into a QLAC, you reduce those mandatory withdrawals in your 70s. It’s a way of spreading your taxable distributions out more evenly over your lifetime. You’ll still pay taxes on QLAC payments when they come, but possibly at a time when other income (like your pension, if it has no COLA) might be relatively less in real terms. In a sense, you might be withdrawing later when you need it more and potentially at lower tax rates.
Example only. NJ suspended COLAs in 2011; many plans have limited COLAs.
QLAC dollars are excluded from RMDs until payouts begin, subject to IRS rules.
Guarantees depend on the insurer’s claims-paying ability. EBRI research shows longevity insurance can improve outcomes for long-lived retirees.
Investment Risk Reduction
If a big chunk of your savings is in the market, there’s always risk – a downturn in your 70s or 80s could hurt your nest egg longevity. A QLAC transfer shifts that risk to the insurer. In exchange for the lump sum, they take on the market and longevity risk, guaranteeing you (and spouse) a payout no matter how long you live or what the market does. This can provide immense peace of mind.
In fact, a study by the Employee Benefit Research Institute (EBRI) found that incorporating QLACs into a retirement plan significantly improved the retirement readiness of the longest-lived retirees, with very little downside for those who don’t live as long.8
In other words, for the quarter of folks who live the longest, having that longevity insurance made a notable difference in financial security, acting as a safety net if you beat the odds and live into your mid-90s or beyond.
The Risks of QLACs
Now, none of this is to say QLACs are perfect or for everyone. If your pension and Social Security already cover 100% of your expenses with room to spare (including inflation adjustments), and your 457 is just gravy, you might not feel the need for additional guaranteed income. Likewise, if you’re in poor health or have reason to believe you won’t see your 80s, a QLAC would be a poor choice, as you could pass away before ever receiving payments. (That said, most QLACs offer a return-of-premium death benefit if you die early, so your heirs get back the unused portion – but then it wouldn’t fulfill the purpose of providing you income.)
Liquidity is another factor. Once you buy a QLAC, that money is illiquid. You generally can’t change your mind and withdraw it in a pinch. So you’d only devote money you’re confident you won’t need until the payout age. You’ll still have your other investments for flexibility.
The Bottom Line
As firefighters, you’ve spent a career preparing for worst-case scenarios on the job. Planning for a 30+ year retirement is a new kind of scenario, one where the “disaster” to avoid is running out of money in your final years. QLACs are an innovative tool to tackle that longevity risk head-on, allowing you to take some chips off the table and trade them for a guaranteed paycheck that you can’t outlive. For those with solid pensions and decent 457 savings, a QLAC offers a way to turn a portion of your nest egg into a second pension, focused on your later years when your needs might be greatest and your original pension’s buying power may have dwindled.
Of course, like any tool, QLACs must be used judiciously and they won’t be right for everyone. But for many pension households, especially those who are healthy, have long-lived families, or simply want extra assurance, a QLAC can likely add a lot of peace of mind. It’s about protecting the you of 20+ years from now.
You hope you and your spouse will live long, fulfilling lives well into your 90s. Planning for it by turning part of your 457(b) into longevity income is one way to make sure those later years are just as financially secure as the early ones. If you would like some guidance on whether or not a QLAC makes sense for your family and situation, don’t hesitate to schedule some time to talk by clicking the button below!
Sources:
- https://retirementresearcher.com/long-can-retirees-expect-live-hit-65/
- https://www.fidelity.com/viewpoints/retirement/QLAC-qualified-longevity-annuity-contract
- https://www.investopedia.com/terms/q/qualified-longevity-annuity-contract-qlac.asp
- https://www.annuity.org/annuities/qlac/
- https://www.goralkalawfirm.com/blog/what-you-need-to-know-about-the-secure-act-2-0-and-your-retirement-accounts.cfm
- https://www.lordabbett.com/en-us/financial-advisor/insights/retirement-planning/2025/when-does-a-qualified-longevity-annuity-contract-make-sense.html
- https://protectionred.com/how-inflation-affects-your-firefighter-retirement/
- https://www.ebri.org/content/-investment-options-and-hsas-findings-from-the-ebri-hsa-database-and-how-much-can-qualifying-longevity-annuity-contracts-improve-retirement-security
