If you’re looking for ways to increase your retirement income payout, adding a secondary market annuity to your portfolio could be a viable strategy. These annuities can be enticing for those who are seeking a stream (or an additional stream) of income in retirement.
But there are a whole host of other financial needs that secondary market annuities can be used for, too, such as providing supplemental income for those who are still working, penalty-free income for those who are under the age of 59 ½, and even building a pension for the future.
What are Secondary Market Annuities and How Do They Work?
In their most basic sense, secondary market annuities – which are also often referred to as structured settlements – are income streams that are sold in return for a lump sum of cash to the original recipient.
As an example, if someone wins a lawsuit, their payment is often made in the form of an annuity, with income payouts that are made over a period of time. But if the income recipient would prefer to have a sizeable amount of cash for paying off debt, purchasing a home, or a long list of other reasons, they can sell the income – which in turn can be re-sold in the secondary market. Thus, the term secondary market annuities. An investor can then purchase that income stream, and have the payment re-assigned to him or her.
In many instances, secondary market annuities can offer higher yields than purchasing an annuity directly from the offering insurance company. For instance, if an annuity that is issued by a top-rated insurance company pays income of $20,000 for 20 years, the lifetime, or face, value of the annuity would be $400,000. However, an investor may be able to purchase this $20,000 annual income for as low as $250,000. And this can increase the yield substantially.
Common Mistakes When Choosing a Secondary Market Annuity
While secondary market annuities can offer a myriad of advantages, there are also some items to consider before you commit to one of these financial vehicles – and quite frankly, the investment could end up costing you if you make some of these common mistakes.
First, if you need to liquidate the annuity, you may still get some money back. But it could also be somewhat costly to re-market the payment stream on the annuity. So, it is essential that you keep in mind that, like other types of annuities, a secondary market annuity is also a long-term financial endeavor.
In addition, secondary market annuities are priced based on current market discount rates. So, if rates go up, you could end up facing a discount to face value if you are forced to sell the annuity. In this case, there could also be various legal expenses involved, along with a required discount to re-market the case.
How to Determine Whether or Not a Secondary Market Annuity is Right for You
Still not sure whether or not a secondary market annuity is the right vehicle to put in your retirement income portfolio?
The good news is that there are ways to help narrow down whether or not you should peruse this type of annuity – and the first step is to go over your options with an objective annuity specialist.
We are Annuity Gator, and we can help you to walk through your various options and to determine whether or not a secondary market annuity would be right for you. At Annuity Gator, we make up a team of seasoned annuity professionals who focus on researching and reviewing all types of annuities. We offer an extensive Annuity Review Database on our website, which is updated on a regular basis, as well as when new annuity products are offered in the marketplace.
If you have any questions or concerns regarding secondary market annuities – or for that matter, any annuities – we’re here to help. So, feel free to reach out to us directly at (888) 440-2468 to chat with one of our annuity experts. Or, send us an email via our secure online contact form here to set up a time to talk. We look forward to hearing from you.