Secondary Market Annuities

Secondary Market Annuities CAN be utilized in a Lifetime Guaranteed Income plan.  Many people thing that because an SMA is a period certain, fixed term investment it’s not useful for lifetime income.  That’s not the case however. 

Typical lifetime guaranteed income requires one of two options, which are generally low yield.

  • Hybrid Annuities (Via Fixed Index Annuity, or Variable Annuity, With Lifetime Income Rider)
  • Immediate Annuities

Instead, you can use SMA’s to generate a higher yield, and still generate lifetime guaranteed income. To do so, there are two options:

Use a portion of your SMA investment to purchase a future lump sum sufficient to purchase an immediate annuity upon payout,

Or, purchase a “Lifetime Income Guarantee” type longevity insurance policy. Typically, these produce income starting at age 85 and are essentially long term, deferred income annuities.

Case Study

On a recent case, we were able to demonstrate how a 63 year old female with $1500, mo Social security could utilize a nestegg of $1.3M to generate over $100,000 per year income, for life, guaranteed.  We did this by purchasing a lifetime guaranteed income contract to pay $8000/ month at her age 85.  This cost $165,000, as of 3/30/12.  Then, we created a level payment stream of SMA’s paying for 22 years.  This yields $7000/ mo assuming a 5% effective rate, which is available in the market today.  When couple with her Social Security she exceeds $100,000/ year.

At  the end of the SMA income stream, the Lifetime Guarantee policy kicks in for the rest of her life, making the most of longevity credits and insuring the most important part of the equation.  

If you assume she lives to age 100, she will collect over $3.3M in income, guaranteed.  This is a 37 year income stream with an Internal Rate of Return of 5.8%   No index or immediate annuity strategy can come close.

If she  lives to  receive only 5 years of the Longevity Insurance benefits, she still enjoys an overall Internal Rate of Return of 4.75%

 No index or immediate annuity strategy can come close.

As the details of this strategy and the cost/ benefit depends entirely on your situation- including your qualified/ non qualified funds, it’s critical to give us a call to see how this could work for you.

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“For all time periods and for all portfolios, the addition of the annuity leads to a decline in the portfolio failure rates.”

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