Traditional asset management strategies focus on a balanced mix of stocks and bonds. Individual managers have various strategies for managing each part, but history students learned over 100 years ago in the Industrial Revolution that specialization was the key to unlocking productivity and performance. Why trust 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 superior security than generalist stock and bond methods. Let’s investigate a secondary market annuity to understand why. We will use the example of a structured settlement for this example.
Our secondary market example begins when an injured party wins their case, let’s assume you are a worker injured on the job and the 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 settles this case by giving a sum of money to another insurance company that supports future payments. The losing party gets to close their books and move on, and the winner gets their prize.
Now suppose the winning party decides they want 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 to all parties. The winning party, called the annuitant, sells the future payment stream in this short process at a discounted present value to a factoring company.
A well-known factoring company is JG Wentworth, which uses direct-to-consumer ads offering cash now for future payments, through aggressive internet, TC and radio ads with catchy jingles.
The factoring company exchanges cash now for the future income stream and, because of the discounted purchase price, makes a decent profit on the trade. Most factoring companies pool or insure these financial assets into portfolios and resell them in large blocks to banks, insurance companies, and investors. Securitized portfolios offer a high level of credit, high quality cash flows and are therefore in high demand.
So what? How is this of value 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 have actively snapped up these high-yield, low-risk guaranteed payments from companies like Met Life, New York Life, Genworth, and other highly rated insurance companies.
Financially astute 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, they can get the same security with a much higher yield in the Secondary Market.
Let’s look at the top 10 facts about secondary market annuities (SMA):
1) Unlike many other types of annuities, secondary market annuity payments are contractual guarantees, not projections based on future performance.
2) SMA offers above-average returns on a fixed income portion of its portfolio.
3) SMA transactions are largely unknown to the general public and are not available to individual buyers.
4) SMA payments are very secure 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 a short approval before they are transferred to you and are vetted in the process.
8) Secondary Market Annuity payments are paid directly to you, not to a middleman. Payments are direct obligations of a US-based insurance company. Credit ratings for these companies range from AAA to A by Standard and Poor’s.
9) SMAs can be purchased with pre-tax or after-tax dollars.
10) Secondary Market Annuities are denominated in US dollars, so foreign buyers should be aware of foreign exchange and currency risks.