Ask Mr. Annuity: New Book on Income Planning Explains Benefits of Secondary Market Annuities

Steve Lance and Jeff Dorfman, co-hosts of the Ask Mr. Annuity program, explain how secondary market annuities (SMAs) can be a boon to those about to retire and those who are perhaps twenty years away from retirement. Steve covers all the details in his new book, “A Key to Income Planning!” The new book is available in PDF format on the Ask Mr. Annuity website. As Jeff points out, income is everything when it comes to planning for one’s retirement.

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Steve notes that interest rates have been very low for a number of years now, making it impossible for senior citizens to live off the interest on their savings. Interest rates range from perhaps 1.5% down to essentially zero. Ask Mr. Annuity got involved with SMAs as a response to this problem. SMAs are nothing more than annuities already in existence that are being resold to the secondary market. Everyone has probably seen the J.G. Wentworth ads inviting annuity holders to get cash now. And that is how SMAs come to be. They are often annuities that came about through a settlement of a personal injury lawsuit and were sold for cash to pay off bills or simply to survive.

As Steve points out, an annuity holder can sell income streams from lawsuit settlements or lottery winnings in the secondary market. And these sales create opportunities for people who have cash in savings or money market accounts to start earning higher interest rates through the purchase of SMAs. Steve says that the development of the secondary annuity market caused him to write his new book. SMAs typically pay 2 or 3% more interest than the conventional annuities available for purchase. SMAs can carry interest rates as high as 7%, whereas traditional annuities offer rates in the 2-3% range.

At Ask Mr. Annuity, Jeff and Steve offer SMAs for sale. They look at J.G. Wentworth and a number of other sources to compile a list of SMAs that are good investments and make them available to interested investors. The goal is to get the most bang for the buck. There are new annuities available every week, and they go on a hot sheet at Ask Mr. Annuity. After SMAs are offered for sale, they don’t last long.

If you spot an attractive SMA, you should purchase it quickly, as there may not be another just like it in the near future. Steve explains the SMA market by using real SMAs as an example. For example, he points to one issued by Pacific Life that has a purchase price of $68,000. The rate of return is 4%. For this particular SMA, payments start in April, 2016 and run for 180 payments – fifteen years of payments at $511 monthly, a total return of $92,000. This is not the highest rate imaginable, but it is at least 2% better than current interest rates. This SMA would be good for someone retiring very soon.

Steve has another example for someone who is 15 to 20 years away from retirement. There is an SMA from Allstate that has an interest rate of 6.75%. The purchase price is $217,000. The payments, 166 of them, would start in 2030. The monthly payment would be $4,457, and the total return would be $900,000. For someone who is fifty years old, this would be an ideal retirement asset. Steve points out that these SMAs usually sell within a week of being offered for sale. They are offered by large, solid insurance companies and are great investments.

Steve Lance has been a teacher, a financial analyst for GE Capital, and is the author of "Annuities: The 21st Century Pension Plan." Steve Lance along with his co-host Jeff Dorfman ask and answer questions each week that are the concerns of today’s savers retirees on Ask Mr Annuity. The Financial Network is a featured network of Sequence Media Group.