It took a long time for Ann to come out of her shell after her husband Jonathan
died. Her children, grandchildren and friends were all concerned. But when she finally
did emerge it was with renewed zest for life and a commitment to doing some of the
things that she and Jonathan had always wanted to do. One of those was to build
a family vacation home on the land they had purchased on a lake in Maine so long
ago.
While the idea was simple, figuring out how to finance it was another matter. She
knew that the immediate annuity the couple bought back in 1996 for a single $1 million
lump-sum premium provided almost $5,600 a month for 30 years. Then there was her
Social Security payment of $1,100. And there was Jonathan's pension which provided
another $4,700 a month. And while Ann did not understand her finances all that well,
she knew that she had a lot of income – certainly more than she needed – but not
really a lot of assets.
There was another problem too. The land where she wanted to build was cheap. So
cheap, in fact, that it would not collateralize a loan to start construction. The
situation seemed insoluble until Ann's financial advisor was able to put together
a plan that would enable her to sell portions of her annuity as she needed them.
Her advisor, Patrick, helped Ann access the secondary market for annuities, which
in addition to making it possible for specialty finance firms to buy annuities outright
from individuals, also made partial purchases possible.
In the ensuing transactions, Ann sold partial payments on three separate occasions
from the same single premium immediate annuity, which gave her lump sums of cash
to finance the construction of a vacation home for her brood of children and grandchildren.
In March of 2004, she sold $2,014 of her $5,594 monthly payment for a period of
the next 60 months for $100,000. This enabled her to gain the necessary permits,
and provide the up-front payment to her general contractor. Six months later, she
sold $1,816 of her remaining monthly payment for a period of the next 120 months
for $150,000 which financed the interim payment to the general contractor. Then
in June of 2005 she sold $2,601 of her monthly payment for 180 months starting in
March 2009 (starting almost 4 years in the future) for $200,000. This last payment
required some elegant engineering, since her monthly payments through 2009 – reduced
by earlier sales – would not easily finance the remaining $200,000 she needed. This
challenge was ultimately overcome by selling larger payments beyond the time horizon
of the initial sales.
Ann used the proceeds from the last sale to pay the general contractor the remaining
$150,000 and used another $50,000 to buy furnishings for her vacation home. This
past Labor Day, Ann's entire family gathered at her new vacation home on the lake.
Sure, it was a little bittersweet without her late husband by her side, but as Ann
said, "It was much more sweet than bitter."