Annuities offer different options to provide insurance for your future needs, including providing a supplement to retirement savings. They offer a tax-deferred way to secure a monthly payment for yourself over a certain period of time, perhaps to help you retire more comfortably. Whether variable or fixed, deferred or not, annuities can provide you with some peace of mind for the future.
They are particularly helpful when planning long-term, but when life throws you a financial curve ball via rising college tuition rates or unexpected medical expenses, for example, your money is not immediately accessible. You can however, choose to sell your annuity, or part of it, and turn those future structured payments back into liquid cash.
There are two main types of annuities – immediate fixed annuities and variable annuities, with an option to include guaranteed lifetime withdrawal benefits, or GLWB. Both plans offer guaranteed income for the future, but variable annuities with GLWB have the potential for growth, and give you more security if the market takes a downturn.
Deferred annuities are also available. This type of annuity delays payment until a future date and are most attractive to people looking to increase their income stream later in life, as a means of creating a ladder of income over different time periods.
When you do find the need for an influx of cash immediately, however, your annuity can be a lifesaver.
Selling Annuity Payments
There are three ways of selling annuity payments:
By selling a portion of your annuity payments, you’ll continue to receive a monthly income without losing certain tax benefits. These benefits will be inherited by your heirs or family in case you pass away before receiving all the payments.
Selling Annuity Payments Fully
When you chose to sell your entire annuity, you terminate the investment and will not receive any future payments. You will receive your entire annuity in the form of liquid cash and can be used immediately.
Lump Sum Over-Time
Selling your lump sum over time will ensure that you receive a guaranteed income flow with the tax benefits. Selling annuity payments in lump sum over-time allows you to frontload some of your payments into larger payments. Which means that the amount you receive as income will decrease over time.
Regardless of the method you chose, selling annuity payments is fairly simple. Since it is a straightforward legal matter, it is best to have a lawyer or other professional advisor guide you through the process.
Annuities can also be sold in what is known as the secondary market. There are many companies that buy annuities. Take some time to do a little research and homework to find a company that you think is reputable and may make you the best offer for your investment.
As these companies are in the business of buying annuities and structured settlements to make money, you need to keep a few things in mind. These companies charge fees for their services, including legal, administrative, recording, filing and miscellaneous other tasks, this fee is called the DISCOUNT RATE. The fees are normally usually deducted from the payout and may not need an upfront payment.
The company you chose will send you a contract and disclosure statement to sign on. Before you sign, you should review the documents either with your attorney or financial advisor. When you sign it and return it to the company buying your annuity payments, they must file it in court for a judge to approve.
The court will set a hearing date, which you may need to attend. At the hearing the judge can ask you the reason why you’re selling your annuity payment and will advise if this is the best method to secure funds. If the court agrees with the payout agreement between you and the annuity buyer, the judge will approve the transfer and you will receive your payment. It unusual for a judge to refuse your request. This is a safeguard to prevent you from being caught up in a scam.
How do you protect yourself? There are several ways to protect yourself from the questionable and disreputable companies that are in the market to make a fast buck. You can protect yourself by:
- Ensuring the company you have chosen is accredited
- Keeping a record of the complete sale, including processes and procedures
- Double-checking the amount to ensure you receive the expected amount
- Selling only how much you need to and not allow a salesman cajole into selling more than you require
- Hiring a professional advisor to review the purchasing company’s, paperwork and selling procedures and processes
- Receiving impartial advise on selling annuity payments
If everything goes according to plan, you will receive the liquid cash you require, and will be on your way to correcting your financial situation.