As with any investment, there are pros and cons to Secondary Market Annuities . Take a moment to read through these pros and cons, and move on to FAQ page to see the most frequently asked questions we get from customers.
Remember, Secondary Market Annuities are used in three distinct ‘safe money’ scenarios- Income Now, Income Later, and Safe Growth. The ‘pros’ for one scenario or investor may be a ‘con’ in another investor. The only important answer is, is it right for YOU?
Fixed Term Investment
Fixed Payment, Pays to Buyer or Heirs
Pros
A fixed yield for a fixed period of time, paying to you or heirs.
Cons
Payment stream has an end date.
Analysis:
With Secondary Market Annuities , you are making an investment that pays for a fixed and definite time period. The income streams stop paying when the principal and interest is paid back. This is just like when you borrow money- the loan is closed and the obligation to make payments cease when you as the borrower pay in full… but in the case of a Wholesale Income Payment, you are the one receiving the payments from the insurance carrier.
Most traditional lifetime annuities are sold using fear- fear that you or your spouse may outlive your money. While guaranteed income is critical in retirement, there are many situations where guaranteed LIFETIME income is Not necessary.
For example, investors with significant assets, or an inheritance coming, or existing pensions and social security. There are many situations where guaranteed income is desired but lifetime income is unnecessary, and for these situations Secondary Market Annuities offer a great supplemental source of safe, guaranteed income.
Frequency and Duration of Payments
Absolute Payment
Pros
Payments accrue to the payee/ buyer you specify on your purchase reservation. That may be you, your spouse as joint Tenants, your heirs, your Trust, or your estate. What You See Is What You Get.
Cons
In some states, this may create probate issues.
Analysis:
Create a Trust to be the receiving entity, to skip probate. Plus, nearly all our payment streams use a servicing company to receive the payments, for ease of reassignment or change of payee. Consult your own tax and estate planners regarding Trusts.
Liquidity
Wholesale Income Payments Do Not Offer Partial Surrender Liquidity
Pros
Secondary Market Annuities pay out exactly as scheduled, to you or your heirs.
Cons
You can liquidate (re-sell) a Secondary Market Annuity, but the amount you receive depends on the interest rate environment at the time you decide to sell.
Analysis:
Devote only that portion of your assets that you can safely set aside in a fixed and long term investment. Deal with liquidity with other assets. Know that it is easy to re-sell all the payments, but there are no partial liquidity provision in Secondary Market Annuity contracts.
Profitability
Secondary Market Annuities Are More Profitable Than Other Fixed Investments
Pros
Attain a higher yield with your fixed income allocation, when compared to other comparable options such as bonds, CD’s or Fixed Annuities.
Cons
What’s not to like about higher yield payments?
Analysis:
This is self-explanatory. Higher yield fixed income means lower cost to secure your financial future, leaving more left over.
Volatility
Secondary Market Annuities Have No Volatility
Pros
Self-evident. Secondary Market Annuities are priced based on current market discount rates. If rates fall, you may have contracts that can be sold at a profit.
Cons
A Secondary Market Annuity is priced based on current market discount rates. If rates rise, you may face a discount to face value if you are forced to sell, in addition to the legal costs and discount required to re-market a case.
Analysis:
Consider a Secondary Market Annuity a “Yield To Maturity” investment. Devote only that portion of your assets that you can safely set aside in a fixed and long-term investment. Deal with liquidity with other assets. If you feel you may have a need to sell and can do so at a profit, having serviced payments may facilitate this sale and reassignment.
Reach out to us if you’d like to:
- Schedule a 1-on-1 video call to discuss your specific needs and situation
- Ask questions about products, carriers, or Secondary Market Annuities in general
- Discuss how Secondary Market Annuities may (or may not) fit into your portfolio
Nathaniel M. Pulsifer, President, DCF Exchange and SecondaryAnnuities.com
(800) 246-1932 | [email protected] | Linkedin
