Deferred Income SMA Example
Deferred income and deferred lump sum Secondary Market Annuities are possibly one of the best uses of this asset class. Whether it is deferred life contingent, or a deferred lottery, or a deferred guaranteed deal, the economics are similar and powerful. We will look at several examples.
First, Colin, a medical professional with a significant income, had searched for years for a guaranteed income of around 6%. He wanted set and forget safety with a reasonable yield. He used his accumulated IRA and cash savings to purchase long-term deferred lump sum and long-term deferred income stream contracts to secure his retirement.
Colin saw in these contracts an opportunity to achieve a reasonable rate of return, with unparalleled safety, and a set and forget structure. He knew he did not need income or access to the assets that he allocated to these contracts, because he held assets in reserve, and held a line of credit on his home in addition to his significant annual income.
Colin purchased seven contracts varying from 15 to 35 years in duration, with income and lump sums maturing throughout his planned retirement years. He was especially happy knowing that his wife and his children would be well taken care of if he were to pass away, and that his assets and income would always accrue to his family.
John is a diligent saver. He practices long-term buy-and-hold stock picking, long-term real estate investing, and discovered SMA’s as an alternative, safe way to turn a relatively small amount of money into a large amount of money over time.
John purchased four small lump sums totaling less than $100,000, but maturing from 25 to 40 years in the future. These 4 deals pay out a total of over $750,000, and his blended rate of return is over 6%. By making four smart decisions, John used a portion of his savings to create a long-term legacy for his new family, or for his own retirement.
And most importantly, he faced no risk of loss of principal in the intervening years. Even with his diligent stock picking, he had endured losses in the past, and he saw that SMA’s were a great way to avoid that in the future.
Bill retired in his mid-50s. With two sons in high school, he faced the prospect of college education while simultaneously supporting his own retirement.
Bill used deferred SMA contracts to shield his retirement assets during the time period when his kids would be applying for college and student loans. His analysis of student aid was that retirement assets were not subject to student loan and parental qualification calculations. (Do you own research- we can’t verify or offer advice on this strategy, so this is explicitly for example purposes only.)
Bill’s analysis was that if he put his money into annuities, they would not be part of his family assets for loan calculation purposes. He thought this would give his kids a better chance to get student loans, yet he would not lose control of his assets and his future income.
He calculated that when his kids graduated from college, his annuities would start paying out, and at that time he could decide if he wanted to help them pay off their college. He wanted to make the decision, and not have the decision made for him by the colleges that his kids chose to attend.
By picking good contracts, Bill turned $350,000 of savings into $700,000 of guaranteed future income, in a retirement vehicle that he believed would not be calculated for student loan purposes.
Again, please do you own research- we can’t verify or offer advice on this strategy, so this is explicitly for example purposes only.