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Money, Insurance & Investments for Seniors
So You Have Decided To Sell Your Annuity or Did You
Know You Could?
You can sell your
annuity thanks to emergence of secondary market
By
Michael Vaughan
 September
22, 2006 - Your advisor or agent told you. Probably more than once. It
was written all over the contract. You may have thought about it, but
never thought it would be a problem.
The ‘it’ we’re referring to is the fact that once
you purchase your annuity, you cannot sell it. You are stuck with it for
life.
While that was once true, it’s not any longer. The
fact is you can sell your annuity thanks to the emergence of a secondary
market that is being pioneered by firms like ours.
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The notion that you can sell your annuity is an
idea that makes so much sense that the real wonder is why it didn’t
happen sooner. There are few, if any, investments you make where you are
required to own it for life. There are also few, if any, investments you
make that, after you purchase it, you have no idea what it is worth.
With the advent of home equity lines of credit, your home, if you own
one, became more liquid than your annuity.
But not anymore.
However, just like any other investment, this
newfound freedom confers upon you the responsibility to do some research
and make the right choices. What follows are some tips and strategies to
help you make the most of the opportunity you have to sell your annuity.
1. Evaluate your decision.
Should you actually sell? In most cases, the
decision to purchase an annuity was made very, very carefully.
Accordingly, the decision to sell one, should be made just as carefully.
Annuities are popular because they provide steady income which (most
often) is guaranteed. Those are important features. Do you need steady
income? If so, the sale of your annuity can still be a good idea,
especially if you reinvest in other financial products which offers a
higher return than your annuity. But if you do find other investments
with a higher return, are they as safe as your annuity? If the income
from your annuity is critical, and you answer no to either of the above
questions you probably should not sell your annuity.
But if the income from your annuity is not
critical, or not all of it, and you need or want cash for any other
purpose, your decision to tap the secondary market is a prudent one that
likely will be rewarding.
2. Call your insurance company.
Determine what options, if any, you have with the
issuing insurance company to cash out your annuity policy directly. Many
deferred annuities have “surrender charges” which lower the cash value
you can get from your annuity. And, in many cases, to get the full value
of the policy, the owner of the annuity must receive 5 of 10 year
payment streams. Most immediate annuities (where the individual is
receiving a stream of payments from the insurance company immediately
after making an up front payment) offer no liquidity options.
Even if what the insurance company is offering
doesn’t work for you, it’s important to know the facts because it will
help you understand the costs, advantages and benefits you will
experience in the secondary market.
3. Contact a reputable buyer of annuities in the
secondary market.
You can get a free review of your annuity policy
and to determine its fair market value directly with a buyer in the
secondary market or through your insurance agent or financial advisor.
This should cost you nothing. There should be no strings attached and
there should be no obligation for this analysis. The company you contact
should fully explain the nature of your policy, what your options are in
the secondary market, and be willing to answer any questions without
pressuring you into selling your policy. And, you want to work with a
company (directly or through your advisor) that has a track record of
providing service and value to annuity owners in this marketplace. It’s
particularly important to understand if you have options to sell your
policy in the secondary market when you have been told by the insurance
company that you can’t cash out the annuity or that you face “surrender
charges” if you want to cash out, because those are the types of
situations where you can benefit the most from the secondary market.
4. For annuities in payout, consider how much of
your current payment you really need.
One of the real advantages of the secondary market
is how much flexibility it offers annuity owners. You don’t have to sell
all of your monthly payments. You can sell just a portion. Here’s an
example. Suppose you own an annuity that pays $7,865 a month. What if
you could do just fine with $5,150 per month for the next five years?
You could sell $2,715 of your monthly payment for five years and get a
lump sum of $137,000. With this lump sum you could pay for a
grandchild’s education, buy a second home, or a boat, or pay bills, or
invest in something different.
5. Get tax advice.
The sale of an annuity can have important tax
consequences. Fortunately, many of these tax consequences are positive,
especially if one of your motivations for selling your annuity is estate
planning. Specifically, while annuities are good for providing a stable
source of income, they are not so good for transferring wealth to
beneficiaries and heirs. If your estate is above the estate tax
threshold, as much as 47% of your annuity could be lost to taxes. Worse,
all of the gains inside of the annuity will be taxed at your heirs’
ordinary income tax rate.
Compare this to selling your annuity and buying
stocks, bonds or mutual funds. These instruments can pass onto your
heirs with no tax consequences at all until they sell them. If your
heirs hold onto the stock, bonds or mutual funds and pass them onto
their heirs you can achieve up to three generations of tax deferred
growth. Ultimately the proceeds from your annuity sale may turn into a
fortune.
The ability to finally sell your annuities may be
met with such relief that the immediate reaction is to cash out.
However, like any other investment, equal care must be taken when buying
as well as selling.
About
Michael Vaughan
Michael Vaughan
is the managing director of J.G. Wentworth’s Annuity Purchase Program™.
Mr. Vaughan has been a featured guest on The Wall Street Journal – This
Morning (hosted by Gordon Beal), in addition to several other national
and local radio programs. Mr. Vaughan has authored articles for many of
the top trade publications to educate insurance and financial
professionals on the secondary market for annuities, in addition to
being quoted as the leading industry expert in Time Magazine, Business
Week, MarketWatch.com, Annuity Market News, Investors News, Dow Jones
Newswires and the personal finance column of many of the country’s
largest newspapers.
J.G. Wentworth
is the nation’s oldest, largest and most respected buyer of annuities.
For more than 15 years, J.G. Wentworth has been purchasing annuities.
During this time, the company has paid out more than $2 billion in cash
to clients for the purchase of future payment obligations. The company’s
annuity-backed notes, which are rated AAA by Standard & Poor’s and Aaa
by Moody’s, are marketed by top-tier Wall Street firms to sophisticated
institutional investors around the globe.
Contact Mr. Vaughan toll-free
at 800-535-0195 x2387, direct at 484-434-2387, or by e-mail at
mvaughan@jgwannuities.com.
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