Secondary Market Annuities?

dragoncar · Post by **dragoncar** » Mon Jul 25, 2011 9:56 pm

Anyone interested in these? I've been watching one company's offerings for a time, and aspects seem very appealing. Basically, you buy someone's annuity for a lump sum (pensions, accident settlements, state lotteries, etc.) and buy at a discount because the seller wants cash NOW.
For an example (note that I do NOT particularly recommend this company, I just happen to subscribe to their newsletter), see http://deals.somersetws.com/ -- one offering is about $53k, which gets you $400 monthly payments for the next 18 years (5.875% return). There are more sophisticated arrangements with lump sums, delayed payment starts, COL adjustments, life contingencies, and so on.
Obviously, there are pros and cons, but the biggest cons I see are:

Inflation risk (6% return sounds good now, but in a decade?)

Counter-party risk (usually insurance companies or states)
I think some may be tax advantaged (i.e. tax free), but haven't completely looked into it yet. Also, I would be extremely wary of handing over a large sum of money to a random broker -- the extra due diligence to make sure its all legit might make it more hassle than it's worth.
Nevertheless, I find myself looking at the payment schedules for the ones I can afford, and thinking that it is attractive.

dot_com_vet · Post by **dot_com_vet** » Tue Jul 26, 2011 4:35 am

$53k paying out $400 is quite good. Too good I think. In July, Vanguard's best annuity in their marketplace was paying $540 on $100k, 20year/life for someone in their lower 60's.
I wonder what the catch is. 5.8% is unreal.

dragoncar · Post by **dragoncar** » Tue Jul 26, 2011 5:14 am

Maybe the catch is that American General may not be around in 10 years? Or that the market for these is extremely illiquid (they must be approved by court order!) combined with the fact that the seller is highly motivated because he needs cash fast.
I've seen them as high as 7% (usually more expensive ones with one lump sump payment in 30 years, etc.)
Edit: apparently, there may be legal risk (http://www.investmentnews.com/apps/pbcs ... /302289992 -- registration required but bugmenot.com has user/pass) Obviously I won't touch these unless I can find someone who knows what the heck is going on to break it down. It's still enticing to pursue, though.

dot_com_vet · Post by **dot_com_vet** » Tue Jul 26, 2011 11:44 pm

I agree, dragoncar. I like everything about these, except the mystery on the details.

MattF · Post by **MattF** » Wed Jun 13, 2012 8:41 pm

Saw a commercial advertising the "receive cash now" side of this today, and got interested. dot_com, could you provide more info on the Vanguard annuities? What is the smallest chunk you can buy into these?
I've done some P2P lending on LendingClub, is there any crowd-sourced version for buying out annuities, lawsuit settlements, lotteries, etc.?
This is the one I saw an advertisement for: http://peachtreefinancial.com/

joer1212 · Post by **joer1212** » Sun Jun 24, 2012 2:37 am

dot_com_vet · Post by **dot_com_vet** » Sun Jun 24, 2012 3:43 am

MattF, here's Vanguard's annuity info:
https://personal.vanguard.com/us/whatweoffer/annuities
The minimum used to be $20k for a SPIA. I'm not sure if that has changed. The Vanguard advantage is their fees are low and very clear.
Keep in mind these are traditional annuities, not secondary market.