Have a Finance Question? Ask a Financial Expert Online.
Good morning! I can help with this..
It sounds like you already have a feel for the various types of annuities ... and it sounds like you're interest in an annuity already in payout (rather than still in the accumulation phase, tell me if I'm wrong) ... but the same analysis must go into the purchase of a secondary annuity as with any other annuity ... with these structured payouts, in today's world, the origin is still an insurance company ... so one of the most IMPORTANT factors is the soundness and strength of the underlying insurance company
The secondary market DOES provide a higher effective interest rate (amount of payout relative to the principal invested - with all other things being equal, such as age of annuitant & beneficiary, and the payout taken, such as life income, life income with survivorship, life income with survivorship and a refund to a third beneficiary, term certains, etc. etc.)
As you probably know, they type of payout taken will vary the amount, but that's just the actuarial math of the annuitant's age (factored by a beneficiary's age, if there is on) ... OR ... The guaranteed length of payout if a term certain is taken....... As you shop from company to company you'll see that, comparing apples to apples (keeping everything else like amount invested equal) those things cause the exact same variations in payout
SO .. the only REAL variable is the interest rate that used to drive the payout and there won't be a LOT of variation there either because all of the insurance companies use the same rates (HOWEVER, if you shop ENOUGH, you may find some companies using higher rates than others simply because of their business model ... meaning, they're willing to take a little less profit on their fixed annuity products because (1) they've kept their costs down, (2) use it a s a loss leader to drive traffic to other more profitable products, or (3) maybe have a higher surrender charge on their fixed annuities that are still in accumulation phase (the ones that have not been annuitized and locked into a payout yet)
By bringing up secondary market annuities, you have brought up the BIGGEST differentiation, if you want more payout for the money. WHY? because someone sold their annuity payout at a discount, because they wanted the cash NOW ... and after the market maker has taken a little of that spread, many times the buyer (you) of that income stream can still get a much higher payout (all other things being equal) that if you went directly to the insurance company.
sorry for the typo "THAN" if you went to the insurance company ...
However, DO ALL YOUR HOMEWORK here, because JUST as with all other annuities, there are SO many variables that it's easy to be SOLD ... just remember there are no free lunches ... AND ANYTIME return is higher, risk is higher ... with secondary annuities there are more intermediaries ... more parties between the actual insurance company that's paying out that annuity and you ... and they have re-packaged that income stream by, again buying it at a discount, taking some of that as profit and then paying out to you something higher that a directly purchased annuity because of the hit the person who wanted their money up front as a lump sum
The things you should ask are (1) Am I the true owner of the annuity stream OR am i just an assignee
(1) Is this income still guaranteed BY the underlying insurance company to ME? OR are you (the person/company selling me this annuity) actually making the guarantee and the insurance company's guarantee still really belongs to you?
(2) Each Secondary Market Annuity is unique and comes in various amounts and durations. ... GO to a large highly rated insurance company (Prudential, New York Life, XXXXX XXXXXcock) get them to give you quote for severla different payouts based on you, your beneficiary, a set amount of money, and several different term certains ... that way you can really see by comparing to secondary market annuities with the same exact payout what kind of advantage you're getting by buying in the secondary market
(3) Once you know that you have really been guaranteed, to your satisfaction, the payout (either by the underlying insurance company OR the company that is really making you the guarantee) LOOK VERY HARD at the strength of that entity. There are various rating agencies for insurance companies ... AM Best ... Moody's ... S&P ... Wiess are probably the best at truly peeling back the onion ... and if you find that the secondary market maker is really the one making the guarantee TREAD VERY CAREFULLY
Again, there are no free lunches ... if they payouts just seem too goo to be true, there may be a reason .. again, there's always a little more risk (of SOME kind) when there's more return
I hope this has helped
Please let me know if you have any questions at all
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information. What happens now? If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Hi, Your answer was excellent as I just responded to JA in their survey via email with a 10 for everything. I didn't see any places on the top of the page where I could give you the 10 rating on top of the page as they usually have. It just says 0 positive ratings.
If you need me to do something else please ask. By the way instead of trying to figure out which way to go on this annuity I was purchasing good quality income stocks so I guess I'll probably stick with that for now.
ccc, cc (Weak)