Annuity Buyouts

Written by Jacey Harmon
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There are a wide variety of reasons to consider an annuity buyout. Before we explore reasons to consider selling your annuity payments, let us review what an annuity is. An annuity is basically an account that can be converted into a stream of payments. Annuities can be used to supplement retirement and education planning or used to settle lawsuits. Once the annuity is converted into a payment stream, the annuitant is locked into the terms of the agreement. Oftentimes financial situations change that require the need for immediate cash. Since you have a supply of money that is only available in the future, you may consider selling your annuity payments.

Reasons to Consider Selling Annuity Payments

As noted above, financial situations change over time and annuity payments may not be meeting the needs of the annuitant. A medical emergency is a good example of how it would be feasible to sell annuity payments. If a person is currently receiving monthly installments of $500 but has a current medical bill of $6,000, they can use the monthly payments as collateral for immediate cash. In all likelihood, one may need to sell up to 13 months of payments in order to receive the needed cash.

Dire medical needs are not the only reason to consider selling annuity payments. When an annuity is converted into a payment stream, the payments are calculated by using current interest rates. If you converted your annuity in a low interest rate environment, you are likely receiving lower payments than what you would have in a high interest rate environment. If interest rates are moving higher, it may be time to consider selling your current payments in exchange for higher rate payments.

Let's say that you are receiving annual payments from your annuity of $4,200 for the next 20 years. The total of the payments will equal $84,000 and you receive a bid from a buyer for $70,000. It may not seem like a smart thing to sell the annuity at a $14,000 discount, but you need to consider the current interest rate environment. A 20 year municipal bond offering an annual yield of just eight and a half percent would be a better investment. The $70,000 invested into the municipal bond would yield $5,950 every year. That would equal a monthly payment of $495 in tax free funds.


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