Lump Sum Secondary Market Annuities are one of the best ways to use SMA’s to escape volatility and create a significant guaranteed future asset base.  They’re perfect for investors who are not excited about the low rates offered on lifetime income contracts currently, and for younger savers as well.

Age is not really the determining factor with lump sums as they may be applicable in a wide range of situations. Here are a few ideas how prior clients have used them:

Case #1

Age 45, saving for retirement.  IRA Purchase.  Today’s Price $34,192.  Payments: Lump sums of $50,000 in 2038, $75,000 in 2043, and $100,000 in 2048.  6.25% effective rate

The purpose for this investor was to utilize IRA funds in a safe and totally hands off investment.  Without a doubt this investor knows he has $225,000 coming in tax deferred into the IRA, and can either annuitize it, distribute it, or reinvest it at his discretion.  Zero volatility and risk for 35 years.

Case #2

Age 59, not yet retired.  Invested $212,770 for a $500,000 lump sum to mature in 2029.

This investor was not retired, and wanted to not lock in low lifetime income annuity rates right now.  By placing a lump sum, he safely invested a portion of his nest egg in a lump sum that matured at age 76, when he felt he’d get a much better deal on an immediate annuity, but more importantly, have the flexibility to NOT annuitize his money if health or circumstances warranted it.

Case #3

Age 38.  Newly re-married, this investor picks up small, long term deals regularly.  He’s also a devotee of Warren Buffet style buy and hold equities, buying for quality management and dividends, but knows that 5 to 6% from the likes of Met Life and New York Life are as good as any stock bet he can make.

One of his deals was $19,948, and pays back $25,000 in 2030 and $41,000 in 2035.  As a long-term set and forget deal at an excellent deferred compounding 6% rate, this is competitive with long term equity returns, and lacks all volatility and risk.

Other Uses for Lump Sum Secondary Market Annuities

Some other uses for lump sum Secondary Market Annuities include inheritance planning, index and variable annuity alternative investments without locked in annuitization clauses, and general safe investment.

An innovative way to use lump sums for retirees is, instead of locking in a lifetime income stream with a hybrid annuity or a variable annuity with GLWB rider, is to use a lump sum contract to pay out at the time you want lifetime income to start, and use that lump sum to purchase an immediate annuity in the future.  Immediate annuity rates get better with age, and markets may be better in the future as well, so this is a great way to retain flexibility while ensuring safety.

Finally, one of the most intriguing options is for a parent or grand parent to purchase a deferred lump sum in the name of a trust or LLC, then gift the shares of the ownership entity over time to a child.  When the payment comes in it’s paid to the Trust or LLC, and distributed per that private agreement.  Consult your own tax attorney for gift tax rules.

Lump sum Secondary Market Annuities are a great way to eliminate volatility and create a solid foundation of assets for future use.

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