What Are Secondary Market Annuities (SMAs)?

Secondary market annuities (SMAs) allow annuity owners to sell the future payments of their annuity to a third-party company for a lump sum payment. This allows owners to receive an immediate cash payment, usually at a discounted rate, instead of waiting for future payments. The exchange is less money now or more money spread over a much longer period of time.

To determine if this might be a good solution for your situation, you may want to consult with a financial advisor who can help you figure it all out.

What Are Secondary Market Annuities?

People may have annuities for several reasons. Primary market annuities include those purchased by people for long-term income security; the primary market can also include lottery and lawsuit winners.

Income annuities provide lifetime payments, but people sometimes prefer a lump-sum cash payment. This allows them to receive a portion of the total they would receive right now instead of waiting for each payment down the road. In this case, annuity owners can sell them on the secondary market. Annuities sold on the secondary market are what are known as secondary market annuities (SMAs).

Those who purchase an SMA pay a lump sum to buy it from the primary owner, then they start to receive payments from the annuity. Because SMAs are typically purchased at a discount, they can have higher yields than primary market annuities. However, SMAs usually cannot be sold once purchased from the primary owner. In addition, SMAs usually have a fixed term rather than issuing payments for life. The typical term for an SMA is 20 years, but you can often find SMAs with both longer and shorter terms.

When Are Annuities Sold on the Secondary Market?

There are several reasons someone might want to keep their annuity payments as it can be a great income source in retirement. We often talk about income annuities, which people purchase as a form of income security. Within income annuities, there are several types, such as immediate and deferred annuities. However, people can also receive annuity payments due to any of the following:

Lottery winnings
Lawsuits
Insurance claims
Money left in a will

Those who receive annuity payments in these situations may be more likely to sell them to the secondary market. For example, someone who wins the lottery may be more inclined to opt for a lump-sum payment by selling their annuity in the secondary market and taking a large chunk of the money owed right now.

How to Buy SMAs

Buying a secondary market annuity (SMA) involves purchasing an existing annuity payment stream from someone who no longer wants or needs it. These transactions typically occur through specialized brokers or financial institutions that connect sellers and buyers. When you buy an SMA, you take over the right to receive the remaining payments, which can provide a predictable stream of income, often at a discounted price compared to newly issued annuities.

When you purchase an SMA, you typically buy from a third-party seller, and the courts may also be involved in the process. As mentioned earlier, SMAs tend to have relatively high-interest rates compared to primary market annuities. You can often find SMAs with yields of 3% to 5%.

Some SMAs have cost of living adjustments (COLAs), though most do not. Most also issue monthly payments, but they can also be quarterly or annual. You will even find some that pay a single lump-sum payment in the future. In general, though, SMAs have payment schemes like primary market annuities. Monthly payments are the most common.

Pros and Cons of SMAs

One of the biggest advantages of secondary market annuities (SMAs) is their potential for higher returns. Because these payment streams are purchased at a discount, buyers often receive a better effective yield than they would with newly issued annuities or traditional fixed-income investments. This makes SMAs appealing for investors seeking reliable cash flow with enhanced return potential.

SMAs provide a fixed payment schedule backed by an insurance company, offering a steady and predictable income stream. This structure can be especially attractive for retirees or conservative investors who want consistent cash flow without worrying about market fluctuations. Once the court approves the transfer, payments are legally binding and guaranteed according to the contract terms.

For those already holding stocks, bonds, or other annuities, SMAs can add diversification to a portfolio. The steady income they produce can complement market-based investments, reducing overall volatility in your retirement income strategy.

One of the major drawbacks of SMAs is that they are illiquid. Once purchased, you typically cannot access your funds until the payment term ends. This lack of flexibility makes SMAs better suited for investors who don’t need short-term access to their capital. Because SMAs involve transferring ownership of existing annuity contracts, they come with additional legal steps. Court approval is required, and the process can take several weeks to finalize. It’s essential to work with experienced professionals to ensure compliance and avoid errors that could delay or invalidate the transfer.

Although payments are guaranteed by the issuing insurance company, there’s still some level of credit risk. If the insurer faces financial trouble, your income stream could be disrupted. Verifying the insurer’s financial strength rating and reviewing the annuity’s history can help mitigate this risk.

Bottom Line

SMAs allow annuity owners to sell their annuities at a discount. In return, they receive a lump-sum payout. The buyer of the SMA then receives regular payments, just like the original owner did. However, unlike primary market annuities, SMAs usually have an end date. Plus, SMAs usually cannot be resold. But they can still be attractive to buyers because they tend to offer higher interest rates and guaranteed payments.

Tips for Investing in Annuities

Annuities provide regular payments, which can be a nice boost to your retirement income. Speaking with a financial advisor can help you determine if it’s a strong investment for your financial goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Will your investments be enough to cover your expenses in retirement? If not, an annuity could help you pick up the tab. Find out how much your investments might grow with our investment calculator.
There is more than just one type of annuity. For example, if you purchase an income annuity, you’ll have a choice between fixed vs. variable annuities in addition to immediate vs. deferred annuities. The best choice depends on your situation and goals.