What is an annuity?
Though the concept of buying and selling annuity is increasingly becoming popular, most people do not understand what is annuity. Annuity refers to a contractual financial payment plan where one pays and grows the funds until Annuitization. After Annuitization, one is assured of receiving a stream of income in the future. The best thing with annuity payments is that, it is not taxed but the revenue stream that is generated subjected to income task just like any other pension payment. The period of time that is between annuity funding and first payout is known as the accumulation phase.
Annuity can either be classified as deferred or immediate. In a deferred annuity, a person contributes money meant for investment for a period of time, and then start getting payments at a specified date in the future. On the other hand, if a person opts for the immediate annuity, he/she starts receiving payoffs after making the initial investment. The two types of annuities can be further classified as fixed or variable. In a fixed annuity plan, you pay a fixed amount of money at for a given period of time while for variable annuity, one is there is no fixed amount of money that one is supposed to contribute.
Selling Annuity Payments
What makes annuity a good retirement investment is that, a person can sell annuity payments at any period of time without having necessary to wait for the settled payments. There are various options of selling annuity including partial, entirety and lump sum. For the partial option, one sells a portion of his/her annuity, but continues to receive periodic income while at the same time keeping tax benefit. The best thing with partially selling your annuity is that you will continue to get structured settlement, and in case you die, the benefits will be extended to your next of kin. Selling annuity payments in Entirety means that a person empties all the investment at once eliminating any chance of period payments in the future. This option is best suited for those people intending to switch from one investment to another. Selling annuity in lump sum implies that one gets money in large increment, but at the same time one is assured of a lower income for the structured settlement.
Benefits of selling annuity payments
Annuity is supposed to provide a source of income after retirement, but selling annuity in exchange for can have numerous financial benefits. Some of these benefits include;
- Source of instant cash when needed
- Prevent your annuity payments for loosing value as a result of inflation
- It is possible to sell a portion of the annuity and keep the rest
- There are no early withdrawal penalties
- One can use the proceed to to make even a better investment
Source of instant cash when needed
Even after completing annuity payment, the payments do not commence until the date you set for it to commence. However, selling annuity guarantees instant cash that can be used to make an investment or attend to a more urgent need. This situation applies best for those situations where when one was making annuity payment, he was not certain about the future, but as time goes by, he/she realizes the payment won’t serve him/her well.
Prevent your annuity payments for loosing value as a result of inflation
Not all annuities matures to the value they were intended. In some instances the annuity may lose value as a result of inflation resulting in a loss for the product buyer. However, when one sells their annuity, prevents the above from happening.
Partial selling option
Another benefit of selling annuity is that one can sell a portion of their payment and enjoy structured payment in the future. The proceeds from sales can be used to set up a project or an investment at the same time being assured of a revenue stream after retirement. One can sell annuity payments to make a better and a long lasting investment that can be passed down to generation.
Reasons for Selling Annuity Payments
There are numerous reasons that can make one to sell his/her annuity payments. Some of these reasons include;
1) Setting up a new investment
2) To clear school or medical fee
3) In case of a divorce
4) When one wants to liquidate a long term investment
5) In case one loses a job
However, there exist some types of annuity that cannot be sold. Some of this type of annuity includes
- Veterans benefits
- Benefits from social security
- Payments for child support
- Workers compensation payments