The Risks of Using Factoring Income in Retirement Portfolios

The secondary market for a variety of discounted cash flows has existed for over 30 years and represents a billion dollar a year industry. Examples include secondary market pension and lottery payments, annuity payments and structured and lawsuit settlements. Most of these products are purchased directly by institutions such as banks and hedge funds but have recently expanded to include qualified individuals. 

A structured cash flow represents a set income stream such as a qualified annuity payment, retirement benefit or pension income sold at a discount in exchange for a lump sum payment. These payments can provide for higher rates of return than available through traditional fixed or income products. Structured cash flows represent predictable income that is originally sourced through institutions such as the federal government, investment-grade corporations and state and local governments.

Each pensioner must complete a financial underwriting process to be approved to sell a portion of their pension income for a set period of time (5 or 10 years).

A buyer will then submit a FIP, LLC Purchase Agreement and will send funds via cashier’s check or wire to our bonded escrow company with funds held at Sun Trust Bank.  Assuming the requested inventory is available, within a target of 5 – 30 days from the time funds and paperwork are received, the structured cash flow company will identify a specific cash flow(s) from one or more sellers to meet the buyers requested parameters.   They will then deliver to the buyer, through their referring adviser, a set of closing documents for the buyers review. Once the closing documents are approved, signed and returned, the transaction will close. Payments are made monthly and deposited electronically to a buyer’s checking or savings account or to a named IRA custodian.

 Each account will have several underlying sellers to diversify the risk and reserve accounts act as a financial backstop for potential seller defaults. Buyer suitability and liquidity is a paramount concern before moving forward with this type of income product. Joe Hipp was a co-contributor to this press release.