Top 10 Secondary Market Annuity Facts
Traditional asset management strategies focus on a balanced mix of stocks and bonds. Individual managers have various strategies for managing each slice, but history students learned more than 100 years ago in the Industrial Revolution that specialization was the key to unlocking productivity and performance. Why entrust your retirement income needs to a generalist? Why not hire a specialist, an expert in the unique challenge of generating safe and guaranteed INCOME?
Asset accumulation is very different from income maximization …
Secondary market annuities offer superior returns and security superior to generalist bond and stock methods. Let’s investigate a secondary market annuity to understand why; We will use the example of a structured agreement for this example.
Our secondary market example begins when an injured party wins your case, let’s say you are a worker injured on the job and your employer’s insurance pays a settlement. Instead of a lump sum, the injured party receives a series of payments over many years, and the paying party resolves this case by placing a sum of money with another insurance company that supports future payments. The losing party can close their books and move on, and the winner has their prize.
Now suppose the winning party decides that it wants cash now instead of future payments. In most cases, this court-ordered change to the agreement requires a new court hearing, where the court oversees the process to ensure fairness for all parties. The winning party, called the income beneficiary, sells the future payment stream in this court proceeding at a discounted present value to a factoring company.
A well-known factoring company is JG Wentworth, which uses direct-to-consumer ads that offer cash now for future payments, through aggressive internet, TC, and radio ads with catchy jingles.
The factoring company trades cash now for future income stream, and because of the discounted purchase price, it makes a decent profit on the trade. Most factoring companies bundle or securitize these financial assets in portfolios and resell them in large blocks to banks, insurance companies and investors. Securitized portfolios offer high credit, high quality cash flows and are consequently in high demand.
And that? How valuable is this to you?
Court-supervised, cash-backed payment contracts with highly rated insurance companies are high-quality assets in high demand. But in recent years, individual investors have gained access to this market and taken these high-yield, low-risk guaranteed payments from companies like Met Life, New York Life, Genworth, and other highly rated insurance companies.
Financially savvy investors can benefit from secondary market annuities in the fixed income or low risk portion of their portfolio, precisely because of the low risk nature of these assets. Instead of buying corporate or Treasury bonds, or fixed annuities, with low yields, you can get the same security with a much higher yield in the secondary market.
Let’s look at the top 10 secondary market annuity (SMA) facts:
1) Unlike many other types of annuities, secondary market annuity payments are contractual guarantees, not projections based on future performance.
2) SMAs offer above-average returns on a fixed income portion of your portfolio.
3) SMA transactions are largely unknown to the general public and not readily available to individual buyers.
4) SMA payments are very safe and come from the highest rated life insurance companies. Some are also available from the State Lottery Commission.
5) Secondary market annuities have no hidden administrative fees.
6) Secondary market annuities are contracts that are not tied to your useful life and therefore can offer payments to your heirs after your death.
7) All SMAs require court approval before being transferred to you and are vetted in the process.
8) Secondary market annuity payments are paid directly to you, not to an intermediary. Payments are direct obligations of a US-based insurance company.The credit ratings of these companies range from AAA to A according to Standard and Poor’s.
9) SMAs can be purchased with dollars before or after taxes.
10) Secondary market annuities are denominated in US dollars, so foreign buyers should be aware of currency and currency risks.