Juliette Fairley - Why do you receive a reduced amount when selling your annuity?
In this video, Juliette Fairley explains that selling a portion of your annuity for a lump sum results in a reduced payout because the purchasing company applies a discount rate to account for future inflation and to earn a profit.
Video Transcript
The reason that you would be getting a reduced amount on your lump sum when you sold a portion of your annuity to a factory company is because they are looking to make a profit. So they're looking to purchase those future payments at a rate, at a discount rate. It's called a discount rate. And that's because in the future there's going to be a certain inflation rate that does not exist today. So they are actually purchasing it at that rate, which is why you have to sell it at a discount.
