What Are Annuities?
An annuity is a fixed or variable sum of money paid in increments over a predetermined period of time.
The purpose of an annuity is to provide a steady stream of income for the recipient. Annuities are used in a wide array of applications, from retirement plans to legal settlements to survivor benefits and more.
In addition, some inheritances can be set up as annuities, and some annuities themselves can be passed down to a beneficiary. In many annuities, the recipient collects the same amount of money each year, although some annuity contracts can have variable payments.
Why Sell My Annuity Payments?
Life may have changed quite a bit since you first set up your annuity. If so, it may be a good time to look at your annuity a bit differently.
The primary goal of selling annuity payments is to turn all or some of your future annuity payments into one lump sum, allowing you to put your money to good use today rather than waiting – whether it’s for a bigger home, a more reliable car, tuition, or to pay off debt.
Find out how Peachtree Financial Solutions can help you cash in all or part of your annuity payments.
Types of Annuities
An annuity can be created for many different reasons, and Peachtree works with recipients of nearly every kind of annuity. The most common type is a Single Premium Annuity and it can be paid out in two different ways:
Single Premium Immediate Annuities
These annuities begin paying out within a year of being purchased and are typically purchased with a one-time investment, either from the purchaser’s personal savings, a retirement plan, or an inheritance.
Single Premium Deferred Annuities
This type of annuity is set to be paid out at a later date. Similar to Single Premium Annuities (SPIA), this annuity type is purchased with a one-time investment, either from the purchaser’s personal savings, a retirement plan, or an inheritance.
Deferred Vs. Immediate Annuities
An immediate annuity offers a steady, predictable income starting within a year of purchasing, while also allowing you to determine the payback period and riders attached.
Deferred annuities delay the payment until the investor elects to begin receiving them. Deferred annuities consist of first investing money into an account, and an income phase when it is converted into an annuity and payments are received.
Although most retirement plans have transitioned to contribution plans like 401(k) and IRAs, annuities are still offered as part of government and other legacy pension options. It’s up to the retiree to determine how the payout will be made, and how any survivors will benefit from the annuity. Peachtree Financial Solutions cannot purchase payments from pensions or employee-sponsored retirement accounts.
Types of Annuity Payment Structures
The cash that annuities can generate depends on a wide number of factors, from how the economy is performing, to the various riders which were added to it. However, one of the most important factors taken into consideration when selling an annuity is the payment structure you’ve chosen.
There are thousands of different varieties of annuity products and contracts. However, most annuities fall into one of the following general categories of payment structure:
The periodic payments from a fixed annuity are the same for the duration of the term, and are usually funded by a stable rate of interest from the insurer.
Variable annuities are funded by investments that are more prone to fluctuation, such as stocks and bonds. As a result, the periodic payments can vary over time.
The payment structure of your annuity plays a major role in determining whether or not we can purchase your annuity and the amount of the cash lump sum we can offer you. For more information on how your repayment structure will affect your annuity payment sale,please get in touch with one of our representatives.
Guaranteed vs. Life Contingent Annuities
Guaranteed payments will go to your beneficiary in the event that you pass away before all your guaranteed payments are made. Life-contingent payments will only be made as long as you are living. We can purchase both types of payments.
What Is an Annuity Rider?
A rider acts as an amendment to your annuity, in the same way that a rider can modify an insurance policy. It can guarantee income for you or a loved one later in life or help you to prepare for unexpected situations. A financial advisor can work with you to decide if it makes sense to add a rider to your policy to help you protect what matters most.
How Do Riders Affect an Annuity?
Along with payment structure, cash out options are also determined by specific riders that have been put in place on your annuity. Like a traditional insurance policy, riders can be added to annuities. These modify the basic agreement, expanding or restricting the policy to give it the coverage and terms you want.
Medical Annuity Riders
A medical rider changes the scope of your annuity based on health or life events, providing additional benefits should the unexpected occur. Some common medical riders include:
● Death Benefits: In many cases, annuity payout is life contingent, meaning that the insurance company only continues payments for as long as the purchaser is living. A death benefit rider lets your family continue receiving installment payments, or accept the balance of your investment in the form of a cash payout.
● Long Term Care: This rider allows you to access the balance of your investment if you’re transferred to an assisted living community.
● Impaired Risk: If you contract an illness that substantially reduces your life expectancy, an impaired risk rider may increase the monthly payout in the annuity.
● Terminal Illness: In the event of a terminal illness diagnosis, this rider allows you to access a portion or even the remainder of your premium, likely without paying any surrender penalties.
● Unemployment and Disability: Like the terminal illness rider, if you suffer a disability or lose your job, this rider will give you access to your premium. The provider will likely cancel all buy-back fees.
Financial Annuity Riders
Unlike medical riders, financial modifiers adjust your payments due to external factors, such as inflation. These riders can modify the repayment terms, or allow you to access all or a portion of the remaining premium. Each insurance company will offer their own list of financial annuity riders, but some of the most popular include:
● Inflation Adjustment: One potential downfall of a fixed annuity is that the purchasing power of a dollar tends to decrease over time. An inflation-adjusted annuity automatically increases the monthly payment to attempt to compensate for this.
● Commuted Payout: Adding a commuted payout rider to an immediate annuity allows you to withdraw a lump sum should an unexpected need arise. In most cases, this is a time-limited rider, only available during the first few years of payments.
● Variable-Only Riders: Often used to supplement retirement income, a variable annuity gives your investment the best chance of growing, but also comes with certain financial risks like investing in stocks and bonds. To help mitigate the risk, many insurance companies offer special riders:
○ Guaranteed Minimum Accumulation Benefit: If, after the growth phase of your annuity, the total value is less than the total premium paid into it, a GMAB rider will adjust the balance to equal the premium, less any withdrawals made.
○ Guaranteed Minimum Income Benefit: The GMIB rider allows for a minimum monthly payment regardless of the performance of your annuity.
○ Guaranteed Lifetime Withdrawal Benefit: Typically, you have to convert a variable annuity to an immediate fixed annuity to receive an annual income for the rest of your life. The GLWB rider will allow you to draw on your variable annuity without converting it.
What Are the Benefits of Selling Annuity Payments?
Life is unpredictable, and what made financial sense when you purchased your annuity might not be best for you today. Perhaps debt is hurting your credit score, you need instant access to cash to pay medical bills, or you want to make a sound investment like a house or education. Selling payments from annuities for lump sums opens the possibilities and places your financial future in your hands.
What to Consider Before Making a Decision
At Peachtree Financial Solutions, we promise to always explain your options clearly, so that you can make informed decisions every step of the way. If you’re considering selling annuity payments, you should ask yourself a few questions.
● Have my financial needs and goals changed, and are my annuity payments keeping up?
● Do I want to leave money to my heirs?
● Do I want more financial flexibility and control over my assets?
● Is an annuity still the best use of my money today?
Peachtree Financial Solutions does not provide legal, tax, or investment advice. Please contact independent professionals for those services.
If you have more questions, we’re here to discuss them. Call or contact us today!