Secondary Market Annuities: A Safe Money Solution

guide to secondary market annuities

For investors in the last few years before retirement, safety is the #1 priority. Whether you need your assets to produce Income Now, Income Later, or you need them to work for you and Grow Safely, preservation of your assets and protection from loss is critical.

Safe money options like Treasuries and CDs offer dismal yields.

In fact, yields are so low that staying in CDs ensures you are just losing money, safely, every day. Inflation is running far higher than CD yields, so your purchasing power is declining with each day you’re NOT invested.

Certificates of Depression more like it.

But there is a higher yield, little-known alternative in the safe money investment world known as a Discounted Cash Flow Income Payment.  These are also known as a secondary market annuity (‘SMA’). If you are seeking a higher yield, safe and secure alternative fixed asset, then Secondary Market Annuities may be just the ticket.

ORIGINS OF FUNDING IN SECONDARY MARKET ANNUITIES

Structured settlements are typically a series of payments awarded to an individual in settlement of a personal injury case. When the winning party in a case elects to receive their funds over time, money is paid by the losing party into a ‘qualified settlement fund’ or directly to an insurance company.  An annuity is purchased to provide the specific payments agreed upon by the parties.

The liability for the future payments that make up the compensation due under the settlement agreement is backed by an annuity.  Therefore, the insurance company that issued the annuity is effectively a party to the case, and legally bound to make a fixed series of future payments.

Now, we all know that times change.  Even the most carefully crafted settlement plans that seek to anticipate all the future financial needs sometimes fall short.  In 10 to 15% of structured settlement situations, at some point people with future payments need to sell some or all of their future payments for cash today.

This is what we call a secondary market annuity transaction…

Secondary market annuity payment streams are receivables backed by annuities.  Lets be clear- buyers of these payments are NOT buying the underlying annuity.  Instead, buyers acquire the right to receive fixed and scheduled payments from annuities issued by top-rated insurance companies.  These payment rights are transferred in a court-administered and IRS compliant process, but the annuity itself does not change hands.

The underlying annuities themselves cannot be surrendered or cashed into the carriers directly.  Therefore, this court ordered transfer process is the only path to liquidity for sellers, and the discount they take to get cash today translates into a higher yield for you.

UNDERSTAND THE TERM SECONDARY MARKET ANNUITY

The term ‘Secondary Market Annuity’ can encompass several types of transferred receivables.  These may be structured settlements, immediate annuities, and lottery payments that are sold by individuals in a transaction process that follows state-specific transfer statutes.  However, the predominate type of payment we offer are fixed payment streams from structured settlements.

The term ‘secondary market annuity’  should not imply that someone is buying a new annuity directly from a carrier.  What is transacting in a ‘secondary market’ transaction is the right to receive payments that come from an existing annuity. Other terms in the marketplace are ‘DCF Income Payments’, ‘Factored Structured Settlement’ or ‘Previously Owned Annuity’ or even ‘In Force Annuity’ however secondary market annuity is somewhat of an industry standard. Here’s a more in-depth discussion to help you understand the term ‘secondary market annuity’.

It’s also important to clarify that the Secondary Market Annuities we sell are not viatical transactions. That is, they are not life insurance transactions or re-sold variable annuities with death benefits tied to another party’s life.

Rather, the most common SMA is much like a period certain multi-year guaranteed fixed annuity. But unlike newly issued annuities with yields in the 1- 2% range, these secondary contracts come with effective rates of 4% to 5% or more from top-rated carriers.

WHAT CARRIERS BACK THESE ANNUITIES?

High-quality companies like Berkshire, Met Life, Travelers, Symetra, Prudential, and John Hancock are the carriers who take in the premium in structured settlement cases. They have rock solid credit ratings and long operating histories.  These are the financial partners you want on your side as they are well positioned to make payments 10, 20, 30+ years in the future.

WHO ARE IDEAL CANDIDATES FOR SMAs?

secondary market annuities customersSecondary market annuities are perfect for investors who are sick and tired of stock market fluctuations … Who want safety and security…. and who want a higher yield that comparable new issue annuities …. And investors who want certainty in their financial future.

Investors considering index annuities and index annuities with lifetime income riders are great candidates for secondary market annuities instead. Here’s why:

Hybrid income annuities have many benefits, especially lifetime income riders and partial market participation. But the low payouts, complicated terms, and sometimes low credit quality of many ‘hybrid annuity’ carriers make the high yield fixed secondary market annuity deals more attractive.

Other Users of SMAs

Secondary market annuities are great for safety-conscious investors seeking a safe investment with a fixed series of payments that handily beats today’s rates and inflation.

If you’re currently in CDs, cash, and bonds, and not happy with the yields yet not willing to shoulder risk, then a secondary market annuity is a great option to consider.

If you’re looking for a safe income you can depend on, there’s currently no higher yielding way to lock in long-term appreciation than with a secondary market annuity.

And when you look at long-term rates of return in the stock markets, secondary market annuities are extremely competitive and yet they completely remove all volatility and risk of loss.

WHO OFFERS SECONDARY MARKET ANNUITIES FOR SALE?

DCFAnnuities.com is a market leader in connecting retail investors with secondary market annuities through DCF Income Payments.  In addition, the owner of DCFAnnuities.com is also the President of DCF Exchange, a wholesale trading firm serving advisers around the country.

DCF Exchange offers secondary market annuitiesDCF Exchange buys payment streams from diverse origination sources in a strictly regulated and court-ordered transfer process. DCF processes and reviews every case to produce the highest quality income streams for clients, at a high yield unavailable from other fixed income sources.  DCF manages the court-ordered transfer process and that makes you the new payee of an existing payment stream.

You gain a rock-solid payment stream, but win with a discounted purchase price, saving thousands of dollars over traditional fixed-income alternatives.

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DCF Income Payments, also known as secondary market annuities (SMAs), originate as structured settlements of personal injury cases that include defined future payment streams backed by annuities.   

Individuals who sell some or all of their future payments do so in a court-ordered assignment process whereby the annuity issuers and legal counsel comply with state-specific transfer laws and IRS statutes.  DCF Exchange is a buyer of these payments and distributes DCF Income Payments through a network of financial advisors nationwide, including this website.

Purchasers of DCF Income Payments become the new payee of these transferred, in-force payment streams backed by annuities.  At no time are transferred payment streams pooled, aggregated, managed by or subject to fees of a manager. 

All purchaser acquisition funds and assigned payments are handled by a state and federally regulated bank and trust company in a dedicated escrow account environment.  

DCF Income Payments come in three categories:

For Income Now, use Immediate Income DCF Payments

For Income Later, use Deferred Income DCF Payments

For Safe Growth, use Lump Sum DCF Payments

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Compare Secondary Market Annuities

Take a moment to compare Secondary Market Annuities to other safe investments in the marketplace like CD’s, Treasuries, Cash, etc.

CDs are affectionately known as “Certificates of Disappointment” these days. Yields are so low that you are likely losing ground to inflation. A CD is a place to store cash for a short term- it is NOT an investment in this marketplace.

If you’re in a 5 year CD paying 2%, you should look into a 5-year short term lump sum SMA, whose rates are over 4%. Now, rates move with markets, so these are subject to change, but….

The comparison is clear- SMA’s pay more and cost less.

Period certain immediate annuities are simply fixed term fixed payout contracts, such as 20-year payment. You purchase a defined income stream from an insurance company, and they hold all the investment risk and must make the payout no matter what.

Period certain annuities are what defendants ultimately purchase to fund structured settlements. With an SMA, you’re simply buying a period certain annuity, but at a discount.

At current market rates, 20-year period certain annuities reflect an approximately 2% effective rate of return.

With secondary market annuities, a 20-year immediate income stream would have an effective rate of return between 4.25% and 5.25% depending on the deal and the situation.

The comparison is clear- A Secondary Market Annuity pay more and cost less.

Bonds, including muni bonds, corporate bonds, and Treasuries, all carry one critical and terminal risk- loss of principal. As interest rates fall, bond prices go up…… and when rates rise, prices fall.

When buying a bond you are buying the yield. But if you need to liquidate the bonds and the rates have risen, your principal value has diminished greatly. You lose money.

Many people don’t really ‘get it’ when it comes to bonds- they think it’s safe, when really, it’s not.
Instead, consider a high yield fixed investment in an SMA. Secondary market annuities offer excellent yields and fixed terms.

The comparison is clear- A Secondary Market Annuity offers a higher yield, without the risk of principal loss.

What other options are there?

Certainly not bonds! According to a March 22’nd Wall Street Journal Article titled “What Does the Prudent Investor Do Now?”, by Burton Malkiel,

“…Bonds are the worst asset class for investors. Usually thought of as the safest of investments, they are anything but safe today. At a yield of 2.25%, the 10-year U.S. Treasury note is a sure loser.

Even if the overall inflation rate is only 2.25% over the next decade, an investor who holds a 10-year Treasury until maturity will realize a zero real (after-inflation) return. If the investor sells prior to maturity, it will likely be for less than the face value of the note if the inflation rate rises…”

So bonds are no good, and there is even less yield in CD’s-

The Wall St Journal article continues,

“A good way to estimate the likely long-run rate of return from common stocks is to add today’s dividend yield (around 2%) to the long-run growth of nominal corporate earnings (around 5%). This calculation would suggest that long-run equity returns will be about 7%—five percentage points more than the safest bonds.”

So in other words, hold on for a wild ride up and down in the equity markets, with risk of Total loss… for about a 7% yield.

That does not sound like a worthwhile reward for the risk to me…

Given low rates on CD’s, low rates plus price risk on bonds, choppy equity markets, and low long-term equity yields, there aren’t a lot of options.

Are Secondary Market Annuities Safe?

When compared to dismal bond yields and volatile equity markets, the secondary annuity marketplace is a dream come true.

Here, you have AA rated insurance carriers making payments like clockwork, and you can get in at yields of 4% to 6% depending on the term of the payments.

When comparing secondary market annuities to other investments with far less safety, this return is fantastic.

Frequent Questions

Now, there are probably a lot of questions about secondary market annuities floating in your head. First off, things like this tend to sound too good to be true. It’s actually a question I get asked a lot, so I encourage you to read up on the market and let me know any questions you have- Please do call or email your questions, because chances are good others have the same question and it’ll help everyone to keep on expanding the answers.

I also get asked questions about why the yield is so high, and how it’s calculated. I have a fantastic online calculator integrated into the inventory that explains yield, discounted cash flow, and the time value of money and XIRR formulas. I love compound interest- it’s magical. And time value of money is at the core of why these are great deals.

But beyond discounted cash flow there is a fundamental human reality at work- an individual who has a settlement has decided to sell their future payments. They are selling at a discount to present value, and you too are buying at a discount to present value. That’s why the yield is high.

I also get asked about the purchase process- there are a lot of specific things that must be done right in a purchase. I’ve closed millions and millions of dollars of secondary market annuities in the last few months alone and I know the pitfalls. I have an entire section of the site about the purchase process.

I also get asked questions about taxes, using IRA money, inheritance, and a host of other issues. I try and publish every answer to make this site a comprehensive resource.

My approach is to make sure you are fully informed about these incredible investments and get all your questions answered, before making any decisions. That’s the only way to go.

Above all else, though, I get the distinct pleasure of publishing the largest inventory of available Secondary Annuities in the entire country, every single day. Because of the volume, I get the best pricing and I’m able to work with investors nationwide to find the exact right payment stream to suit their needs.

Call, email, or Contact Us for all your Secondary Market Annuity needs.