Like any investment there are certain annuity pros and cons when considering an SMA investment. Despite the fact the SMAs have some great benefits, there are also some drawbacks that you need to carefully weigh when you’re considering this powerful investment option. Nathaniel Pulsifer has some excellent information on his SecondaryMarketAnnuity.net (affiliate link) website on this topic:
Pros: TERM OF INVESTMENT – Known, Definite Yield and payments are absolute to you or heirs.
Pros: FREQUENCY AND DURATION OF PAYMENTS – Payments accrue to the payee/ buyer you specify on your purchase reservation. That may be you, your spouse as joint Tenants, your heirs, your Trust, or your estate.
Pros: LIQUIDITY – Definitive income planning is possible without suffering the lowered spousal payouts associated with other annuities.
Pros: PROFITABILITY – Attain a higher yield with your fixed income allocation, when compared to other comparable options such as bonds, CD’s or Fixed Annuities.
Pros: VOLATILITY – No volatility. Secondary Market Annuities are priced based on current market discount rates. If rates fall, you may have contracts that can be sold at a profit.
Cons: TERM OF INVESTMENT – Payment stream has an end date.
Cons: FREQUENCY AND DURATION OF PAYMENTS – In some states, this may create probate issues.
Cons: LIQUIDITY – If you need to liquidate a Secondary Market Annuity, it is possible but it may be costly to re-market the payment stream.
Cons:: PROFITABILITY – See Liquidity.
Cons: VOLATILITY – SMA’s are priced based on current market discount rates. If rates rise, you may face a discount to face value if you are forced to sell, in addition to the legal costs and discount required to re-market a case.
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SMAs have distinct uses and benefits that set them apart from standard investment vehicles, a few of the benefits are highlighted in this excellent article from the Secondary Market Annities Broker site. Click here for our page on buying SMAs. If your situation is similar to some of those below, you might be in a position to capitalize on the SMA ‘band wagon’:
- Income for retirees
- College savings
- Supplemental income for working individuals
- Wealth transfer to heirs
- Funding of trusts
- Building a pension for the future
- Income with wealth replacement where you buy an income stream secondary market annuity with a lump sum secondary market annuity
- Funding a structured settlement where you can do better with secondary market vs. primary market
- Short-term cash management
- All fixed income investors
- Pre 59 ½ investors that need liquidity prior to being 59 ½
- IRA and non-IRA investors
When you’re ready to “play” with the big boys and move into this interesting type of annuity that has in the past been the secret of corporate investors, see our secondary market annuities page for a great overview.