Income planning

Secondary market annuities for retirement income

A secondary market annuity is really a fixed structured settlement payment right, not a new insurance contract, and that fixed schedule is built for the one thing retirement demands most: dependable income that does not move with the market. At 4 to 7 percent, it can anchor the base of an income plan more efficiently than a new annuity or a bond. Here is how investors use it, and the trade-offs to weigh first.

The problem a payment stream solves

Retirement turns a saving problem into an income problem. A nest egg has to become a paycheck, and two risks make that hard. The first is sequence of returns: drawing down a portfolio during a market slump can do lasting damage, because you are selling assets while they are down. The second is longevity: the income has to last as long as you do.

A fixed payment stream addresses both. The payments are set in advance and do not depend on the market, so the income floor they provide is there whether stocks are up or down that year. That lets the rest of a portfolio stay invested for growth, rather than being sold at the wrong time to cover the grocery bill.

Building an income floor

A common approach is to cover essential, recurring expenses, the ones that have to be paid no matter what, with dependable income, and to keep growth assets for everything else. Guaranteed payment streams fit that floor well, because their amounts and dates are fixed regardless of anyone's life.

Because inventory is unique, you can also match timing to need. Streams start on different dates, so you can choose ones whose first payments begin when the income is required, including deferred streams that start years out. Laddering several streams with staggered start dates lets you shape income across retirement rather than buying it all at once. You can line up any stream's schedule and yield with our yield calculator.

Why the higher yield matters here

The more efficiently the floor is funded, the less capital it ties up and the more is left to grow. Because you buy an existing stream at a discount rather than at a carrier's retail rate, the effective yield tends to run higher than a newly issued annuity or a comparable bond. Same class of carrier, better entry price. We break the math down on where the higher yields come from and compare the floor options on SMAs vs. CDs, Treasuries, and new annuities.

Many investors hold these inside a self-directed IRA, so the income compounds inside the retirement account, subject to IRA rules. How any of this is taxed in your situation is a question for your own tax advisor, not something we advise on; see our note on taxes and your advisor.

The trade-offs to weigh first

A payment stream is a floor, not a whole plan. It is a long-term holding with limited liquidity, so it belongs to money you will not need on short notice, and it should sit alongside an emergency reserve kept in liquid, insured accounts. The income rests on a single carrier rather than a diversified pool, and a level stream does not rise with inflation unless it was bought with an annual increase.

Whether the trade fits your situation is the real question, and we lay it out honestly in are secondary market annuities a good investment. None of this is financial advice; build the mix with your own advisor.

Retirement income questions

Can secondary market annuities provide retirement income?

Yes. A secondary market annuity is a fixed schedule of court-ordered payments from a top-rated carrier, which is well suited to covering recurring retirement expenses. Estimated effective yields run roughly 4 to 7 percent, above a newly issued annuity or a bond of similar quality, so a stream can produce a dependable income floor efficiently. The trade is liquidity: these suit money you can commit for the long term.

How is this different from buying a retirement annuity?

A retirement annuity is a new contract you buy from an insurer at today's rate, often with guaranty-association coverage and some liquidity features. A secondary market annuity is an existing court-ordered stream bought at a discount, which typically yields more but gives up that guaranty coverage and ready liquidity. If an existing schedule fits your income timeline, the secondary market is usually the better price for the same carrier's payments.

Can I time the payments to start when I retire?

Often, yes. Because inventory is unique, you can choose streams whose first payment dates line up with when you need the income, including deferred streams that begin years out. Laddering start dates across several streams lets you match income to expenses over time rather than all at once.

Should a payment stream be my entire retirement plan?

No. A payment stream is a strong candidate for the dependable floor of an income plan, not the whole plan. Keep an emergency reserve in liquid, insured accounts, and hold growth and inflation-hedging assets alongside the floor. This is not financial advice; work the mix out with your own advisor. You can reach our team at (800) 449-6311.

What these assets are, and what they are not

Guaranteed and life-contingent structured settlement payment rights, and lottery payment rights, represent the right to receive factored payments that Pacific Structured Assets purchases and assigns to investors through a court-approved process. They are purchased at a discount to their total scheduled payments.

These payment rights are NOT annuities, NOT insurance products, and NOT securities registered with the U.S. Securities and Exchange Commission. They are not bank deposits, are not FDIC-insured, and are not protected by any state insurance guaranty association. The industry term “secondary market annuity” refers to these payment rights and does not mean you are purchasing an insurance annuity contract.

You acquire the right to receive the payments, not the underlying annuity. The annuity itself does not change hands. Unlike the original structured settlement annuity, which may be shielded from creditors under applicable law, the assigned payment rights you purchase generally do not carry that creditor or bankruptcy protection.

Assigned annuities, offered as a separate product line, are existing insurance annuity contracts reassigned to a new owner through a change of ownership or an irrevocable change of payee.

These are long-term holdings with limited liquidity, and may not be suitable for every investor. There is no public trading market and no daily price. Resale or reassignment of a payment stream to another buyer may be possible, and Pacific Structured Assets can assist, but a resale is not guaranteed and the price it would bring is not guaranteed. Because the payments are fixed, that resale value moves with prevailing interest rates: an investor could realize a gain if rates have fallen since purchase, or a loss if rates have risen. These holdings are best suited to capital an investor can commit for the long term. Nothing on this website is tax, legal, financial, or investment advice. Consult your own advisors before investing.

Pacific Structured Assets, Inc. does not provide tax, legal, financial or accounting advice. The material on this website has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial or accounting advisors before engaging in any transaction, including the acquisition of factored structured settlement payments. Pacific Structured Assets is not registered with the Securities and Exchange Commission and is not licensed to sell insurance in any state.

Pacific Structured Assets

Build the floor with a stream that fits your timeline.

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