Ask Mr. Annuity: Secondary Market Annuities Pay Above-Market Interest Rates

Many people nearing their retirement years are concerned about how to get the most for their money after they quit working. In this edition of the Ask Mr. Annuity program, Steve Lance and Jeff Dorfman explain how an investor, retiree or not, can find get guaranteed returns on investments at good interest rates in secondary market annuities. A secondary market annuity (SMA) can be a real advantage for retirees.

Jeff notes that not everyone knows about SMAs. Annuities can be a real advantage for people who are looking for guaranteed interest rates and payments over a fixed period of time. SMAs are existing annuities that the initial annuity beneficiaries have chosen to liquidate. Very often, an annuity beneficiary will encounter a problem that requires some immediate cash rather than long-term payments. Some SMAs are immediate annuities that the owners have chosen to sell for cash. The sellers might also be lottery winners or personal injury victims who got structured settlements. The structured settlements are typically funded by large, solid insurance companies.

SMAs are like snowflakes, as Jeff puts it. No two are alike. What that means is that an investor who sees an attractive looking SMA should purchase it, as there will not be another like it. Steve explains this by using real SMAs as an example. He points to one issued by Berkshire Hathaway. This particular SMA includes 60 months of an existing annuity that begins payments in December, 2015 and runs for five years. The annuity pays interest of 3.5%. An investment of $46,000 gets a return of $50,000 over five years. Steve points out that this is a much better deal than leaving money in saving accounts that pay virtually no interest.

Another example Steve offers is an annuity from Genworth insurance company. The annuity, which starts in December, pays an interest rate is 3.75% and returns 96 monthly payments. The purchase price is $62,000, and the total return is $72,000. Steve says that people who are sitting on cash in savings or money market accounts that are returning little or no interest would be well served by checking out the SMA market and putting their money into annuities that would return a very attractive rate of interest. The Ask Mr. Annuity website includes a listing of SMAs that are currently available for purchase. Steve also notes that his new book, “A Key to Income Planning,” will be available on the website in PDF form very soon. Jeff notes that readers can call the pair at 866-551-2522 to learn more about SMAs.

Jeff also notes that people who are receiving annuities now who need a lump sum of cash can sell the annuities for cash. Jeff and Steve are able to help with the sale of these annuities.

Also, purchasers of SMAs are not constrained by age limitations as is typically the case for someone trying to set up an annuity.

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.