Beginners Guide to Secondary Market Annuities: What You Need to Know

What are secondary market annuities, and how can they fit into your retirement plan?

This beginners guide to secondary market annuities cuts straight to the core, offering clear explanations and practical insights. We’ll take you through the ins and outs of SMAs, helping you decipher if they’re the right choice for optimizing your financial future.


  • Secondary Market Annuities (SMAs) allow annuity owners to sell their future income streams for immediate liquidity, but require legal processes and court approval to transfer ownership to new buyers.
  • SMAs can offer higher yields and a consistent income for investors, yet come with risks including potential legal disputes and an illiquid nature, where sales are final and cannot be easily reversed.
  • Before investing in SMAs, it is crucial for potential investors to consult an annuity advisor to evaluate the alignment with retirement goals, understand the risks associated, and consider alternatives like SPIAs, DIAs, or FIAs for a secure retirement income.

Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!).

Demystifying Secondary Market Annuities

A Secondary Market Annuity (SMA) is a contract sold by the original annuity owner to a new buyer. This concept was introduced in the 1980s, allowing annuity owners to convert their future income payments into a lump sum.

Annuity owners may opt for this route due to immediate financial needs, essentially exchanging their future annuity income streams for immediate liquidity.

The transfer process for these market annuities typically relies on intermediaries and might necessitate court approval to effectuate the change of ownership.

The new buyer, or secondary market annuity buyer, then steps into the shoes of the original annuity owner, receiving regular income payments, including monthly payments, typically monthly, quarterly, or annually.

This income is secured by the credit-rated insurance companies that originally issued the annuities, making their financial health critical for the security of those payments.

The secondary annuity market has its unique dynamics, driven by the needs of annuity owners who choose to sell their annuities in exchange for a lump sum.

It’s a world where the typical terms of annuity contracts are rewritten, providing an alternative path for retirement planning.

The Mechanics Behind Secondary Market Annuities

The transfer of ownership in SMAs is not as simple as it seems. It involves a court process to ensure the sale is legally sound. This is necessary to protect the interests of all parties involved, from the original annuity owner to the new buyer and the insurance company that issued the annuity.

Finalizing the transaction frequently necessitates maneuvering through legal proceedings. Involving intermediaries, each step is meticulously scrutinized, making it a complex process that requires careful navigation.

Despite the complexities, the promise of a consistent income stream and possible higher yields continues to draw new entrants to the secondary annuity market.

Advantages and Challenges of Secondary Market Annuities

Just like any investment, SMAs have their unique advantages and hurdles. On the upside, they offer higher yields and a steady income stream over a fixed term, typically around 20 years. This provides a known income horizon, a valuable asset in retirement planning.

However, the journey isn’t always without bumps. Buyers face risks such as legal disputes that can freeze or delay payments, impacting the reliability of the income stream. A more nuanced understanding can be achieved by further examining these advantages and challenges.

Advantages: A Closer Look

One of the key takeaways from investing in SMAs is the potential for higher yields. SMAs typically offer higher yields compared to similar annuity products. The higher yields are due to SMAs being sold at a discount to realize a lump sum payment.

Imagine buying a gift card worth $100 for just $80. You’re getting more value for your money, and that’s essentially how discounted rates work in the secondary annuity market.

In addition to the discounted purchase price, SMAs provide:

  • Predictable and steady earnings due to the fixed income stream that comes with the investment
  • Higher interest rate compared to primary market annuities, allowing for more advantageous financial growth
  • A road map for a portion of your financial journey through life, knowing exactly what to expect in terms of returns.

Challenges: What Buyers Should Know

While SMAs can offer lucrative advantages, grasping the potential challenges is equally significant. Once purchased, SMAs are generally not re-sellable, binding the buyer to the original contract term without the option for early release or resale.

Another challenge is the potential delay in the commencement of annuity payments due to bureaucratic hurdles and lengthy court processes. Furthermore, legal disputes can freeze future payments, affecting the steady income stream buyers rely on.

Alternatives to Secondary Market Annuities

While SMAs offer unique benefits, they aren’t the only route to a secure retirement income. Two reliable alternatives are Single Premium Immediate Annuities (SPIA) and Deferred Income Annuities (DIA). Both offer a simpler path to the guaranteed income annuity without the complexities of the secondary market.

SPIAs allow individuals to pay a lump sum cash payment upfront in exchange for receiving regular, guaranteed payments starting almost immediately.

In contrast, DIAs give you the flexibility to defer payments to a future date, offering you control over your income planning while still providing a secure income stream.

These options provide a reliable source of income and can help you achieve your retirement goals.

Why Flexibility Matters: Fixed Index Annuities

For those looking for a more flexible investment option, Fixed Index Annuities (FIA) shine in the spotlight. FIAs protect the principal investment from market declines while still offering returns based on market growth.

The returns of FIAs are determined by their linkage to a market index, offering a credit rate influenced by stock market performance. The participation rate in FIAs dictates the percentage of the index return credited to the account holder.

However, fluctuations in interest rates directly impact these participation rates and the overall return that FIA holders experience.

In comparison to SMAs, FIAs offer greater flexibility, being more liquid and less bounded by rigid terms.

Investing Wisely: Financial Advisor Insights

Consultation with an annuity advisor becomes indispensable when contemplating SMAs. They ensure that the investment aligns with individual retirement goals and help understand the inherent risks.

An annuity expert may emphasize the importance of including SMAs as part of a diversified investment portfolio to mitigate risk and optimize returns.

They assist in:

  • Comparing different SMA options
  • Debunking misinformation
  • Clarifying critical details such as beneficiary provisions, interest rates, and tax implications.

Including spouses and beneficiaries in discussions with trusted advisors when investing in SMAs is advisable to fully understand how such investments may impact their financial future.


We’ve embarked on a comprehensive exploration of Secondary Market Annuities, delving into their intricacies, understanding their benefits and challenges, considering alternatives, and appreciating the role of financial advisors.

It’s clear that SMAs offer a unique path in retirement planning, providing a steady income stream and potential for higher returns.

Booking a call with an annuity expert can provide personalized guidance on annuity strategies and help you make informed decisions about your retirement income.

I can help you:

  • Determine the best solution for your unique circumstances
  • Navigate and make crucial decisions during your financial journey
  • Find the best annuities for your unique situation

By clicking here to schedule a call, I can take a look at specific annuity options and strategize on how to minimize surrender charges. 

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