Annuities are one type of investment vehicle that you can use to fund your retirement and maintain an income stream over time. However, there is no single annuity that is right for everyone; instead, you will need to decide not only which type to use but what terms are acceptable for your situation.
A multi-year guarantee annuity is a common choice for a number of reasons; from the way it handles interest rates to the upper range of its monetary limits, many people find MYGAs to be a good choice. To make that determination for yourself, here’s what you need to know.
How Does a Multi-Year Guarantee Annuity Work?
An annuity in general is a type of product in which you invest a lump sum of money. Over time, money is paid back to you in guaranteed fixed payments. Thus, you fund a continuous income stream that remains predictable over time.
In the case of an MYGA, or multi-year guarantee annuity, you are guaranteed a specific return for a set number of years according to the contract you sign. This money is protected against inflation, which can be a valuable tool if you plan to use an MYGA for many years.
Factors to Consider When Choosing an MYGA
Choosing an MYGA product will be based on your specific financial needs and goals, both in the short and long term. There is no single MYGA; different lenders and investment firms will offer different terms and options. However, MYGAs in general do have some features that are unique to them and advantageous to those looking for retirement funding.
When selecting the right MYGA for you, consider:
1. The Provider
Unlike many other types of retirement funding that are offered through banks, multi-year guarantee annuities are provided through insurance companies. This means that, if you have primarily been working with a bank for your financial needs so far, you might need to do some additional research to locate an insurer that you trust. This influences which MYGA options are available to you.
2. The Premium Limits
In the context of annuities, a premium is how much you invest into the annuity, from which the money is drawn later. Usually, this transaction is completed as a single lump sum. MYGAs are different from other types of retirement accounts because they do have a limit to how much you can invest as your premium. Be sure to check the limits for the MYGAs you are considering; most cap out at approximately one million dollars.
3. The Terms
Terms are not only the stipulations of the contract, though those are important; you will also need to review the duration of payments on your MYGA. Annuities pay out for a set amount of time. Sometimes, that is a lifetime payout and in other instances, it may be for a certain number of years.
Most multi-year guaranteed annuities will require that you take payments for at least two years, though some allow you to go as long as 20 years.
4. The Liquidation Possibilities
Annuities are notorious for being a “set it and forget it” type of investment which means that if you need to take more money out of the annuity than your usual payment, you could face challenges. Always confirm the liquidity options offered for your MYGA. Some allow you to withdraw up to 10% of the balance each year, should it become necessary.
Is an MYGA Just a Fixed Annuity?
For those just learning about annuities, understanding MYGAs may seem overwhelming. One very important element to understand is that an MYGA is not the same thing as a fixed annuity. A traditional fixed annuity provides a fixed interest rate for a set period of time.
This is not always the entire duration of the contract; later, the interest rate may change. Comparatively, a multi-year guarantee annuity will ensure that the interest rate remains the same for the life of the agreement.
Trust the Experts to Help You Select the Right Product for Your Goals
MYGAs are just one variety of potential retirement funding vehicles for you to choose from. Even if you are sure that an MYGA is the right product, you will need to choose the one that has the terms and rates that fit your goals.
At Pillar Life Insurance we have designed our products to let you be in charge. You can obtain more information in our FAQs section. When you are ready to buy, our customer portal will walk you through a step-by-step questionnaire that you can complete on your schedule.