Know What Your Money Will Earn Before You Commit It.
A Multi-Year Guaranteed Annuity provides a guaranteed fixed interest rate for a specific period of time without directly exposing your principal to stock market losses.
For retirees and pre-retirees seeking predictable growth, principal protection and fewer surprises, a MYGA can provide a straightforward home for a portion of retirement savings.
Why Consider a MYGA?
When part of your retirement money has a specific job to do, predictability can matter more than chasing the next market return. A MYGA is designed to provide a known interest rate for a defined period while protecting contract value from stock market declines.
Guaranteed Interest Rate
The insurance company establishes the interest rate for the selected guarantee period, allowing you to know the credited rate in advance rather than depending upon an unknown market outcome.
Principal Protection
Your MYGA contract value is not directly invested in the stock market. Market declines therefore do not directly reduce the contract value.
Tax-Deferred Growth
Interest generally accumulates tax-deferred until withdrawn. This allows earnings to compound inside the contract without annual taxation while they remain deferred.
Predictable Growth
Because the rate and guarantee period are established by the contract, a MYGA can make the future value of this portion of your retirement assets easier to understand.
How Does a MYGA Work?
A MYGA is a type of fixed annuity issued by an insurance company. You place money into the contract and select from the guarantee periods and rates available from that carrier.
The insurer then credits the contract according to the guaranteed rate for the selected period, subject to the terms of the contract.
MYGA terms commonly span several years. Available terms, rates, minimum deposits, withdrawal provisions and surrender schedules vary by insurance company and contract.
The highest advertised rate is not necessarily the entire decision.
Carrier financial strength, guarantee period, surrender schedule, liquidity provisions and what you intend the money to accomplish should all be considered together.
What Happens When the Guarantee Period Ends?
At the end of the initial guarantee period, your available choices depend upon the terms of the contract and the options available at that time.
Depending upon the contract, those choices may include:
- Continuing the annuity under available renewal terms.
- Withdrawing some or all of the contract value.
- Exchanging the contract for another annuity when appropriate.
- Repositioning the money into another part of your retirement strategy.
- Considering an income-producing annuity if your objectives have changed.
This is one reason the initial term should be selected with your broader retirement timeline in mind rather than choosing a product solely because its current rate appears attractive.
Understand the Liquidity Before You Commit
MYGAs are generally designed for money that you do not expect to need completely liquid during the guarantee and surrender period.
Contracts may provide access to a portion of the account value without surrender charges, but withdrawal provisions vary considerably by carrier and product.
Withdrawals beyond a contract's permitted amount may be subject to surrender charges and, depending upon the contract, a market value adjustment.
A MYGA should have a defined job in your retirement plan.
Emergency reserves and money you expect to need for near-term expenses generally require a different level of liquidity. The objective is not simply to lock money away for a rate—it is to match the contract to the purpose of the money.
MYGA vs. Bank CD — Plain English
MYGAs and certificates of deposit can both appeal to people seeking predictable returns, but they are different financial products.
MYGA
A MYGA is an insurance contract issued by an insurance company. Interest generally accumulates tax-deferred until withdrawn.
Guarantees depend upon the claims-paying ability of the issuing insurer. Contract surrender provisions and other withdrawal restrictions may apply.
Bank CD
A certificate of deposit is a bank or credit-union deposit product. Interest in a non-retirement account is generally taxable as earned.
Eligible bank or credit-union deposits may receive FDIC or NCUA insurance subject to applicable rules and coverage limits.
Who Might Consider a MYGA?
A MYGA may be worth evaluating when you have retirement assets for which safety and predictability are more important than direct participation in stock market gains.
Examples may include someone who:
- Wants a known interest rate for a defined period.
- Does not want this portion of retirement savings exposed directly to stock market losses.
- Values tax deferral on interest accumulation.
- Has other funds available for emergencies and short-term liquidity.
- Wants to diversify how different portions of retirement savings are positioned.
- Is approaching retirement and wants greater predictability for part of the portfolio.
When Might a MYGA Not Be the Right Fit?
No single financial product is appropriate for every dollar or every investor. A MYGA may be less appropriate for money you expect to need readily available or when your primary objective is direct participation in market growth.
It is also important to understand the surrender period before purchasing the contract. Choosing a guarantee period that conflicts with your expected need for the money can undermine the reason for purchasing the annuity in the first place.
Where Can a MYGA Fit in a Retirement Plan?
Retirement assets do not all have to perform the same job. Some money may be positioned for growth. Some may need to remain liquid. Another portion may be intended for predictable accumulation or future income.
A MYGA can potentially fill the predictable-accumulation role by providing a known rate and protection from direct stock market declines during the selected guarantee period.
The amount allocated to that role depends upon your income needs, liquidity requirements, other assets, time horizon and overall retirement objectives.
Comparing MYGAs Is More Than Comparing Rates
Rates are important—but two contracts advertising similar rates can have materially different provisions.
When comparing MYGA options, consider:
- Guaranteed rate: What rate applies and for how long?
- Carrier: Which insurance company issues the contract?
- Financial strength: What are the insurer's applicable financial-strength ratings?
- Guarantee period: Does the term match your retirement timeline?
- Surrender schedule: What happens if you need more money than the contract permits?
- Liquidity: What withdrawals are available during the term?
- Renewal provisions: What choices are available when the initial guarantee period ends?
Rate matters. Contract design matters too.
TUSK can compare available MYGA solutions from multiple insurance companies rather than limiting the analysis to a single carrier.
See How MYGA Options Compare
We can review available options side by side—including rates, guarantee periods, carrier strength, surrender schedules and liquidity provisions—and discuss how a MYGA may fit alongside the other pieces of your retirement strategy.
Disclosures: Multi-Year Guaranteed Annuities are insurance contracts and are not bank deposits or FDIC insured. Product availability, interest rates, guarantee periods, features and contract terms vary by carrier and state and may change. Surrender charges and, depending upon the contract, a market value adjustment may apply to certain withdrawals during the surrender period. Withdrawals of taxable amounts are generally subject to ordinary income tax, and withdrawals before age 59½ may be subject to an additional federal tax penalty. Guarantees are based upon the claims-paying ability of the issuing insurance company. TUSK is independent and is not captive to a single insurance company. This material is educational and is not intended as tax, legal or individualized investment advice. Consult the appropriate professionals regarding your individual circumstances.