A multi-year guaranteed annuity (MYGA) may appear bland at first glance, and this is especially true when compared to the growth potential of a fixed index annuity. However, while many people find indexed annuities intriguing, they require a long-term holding period in order to unlock the gain potential of a volatile index and are not for everyone. Some retirees are simply looking for a short-term vehicle that offers constant, predictable growth for a short period as a bridge betweenwealth accumulation and wealth payout, especially during a period of market and interest rate uncertainty.
It’s important to understand the alternatives when considering various forms of annuities. Here is a basic primer on MYGA annuities, including their advantages and disadvantages in retirement planning.
Analyzing A MYGA Annuity
Annuities are mainly designed as long-term wealth accumulation vehicles without the value fluctuation risks associated with a portfolio of stocks or bonds. A MYGA is the life insurance industry’s short-term version of an annuity. It keeps most of the benefits such as stable value, ease in designating beneficiaries and directing payouts and tax deferral of earnings until payout. And, it adds provisions that increase liquidity.
For example, most MYGAs include a provision that permits a 10% withdrawal of account value without charge or penalty. Likewise, most life insurance companies offer riders that provide for surrender charge-free payments in the event of liquidity events such as death, major illness, or the need for long term care.
Advantages Of A MYGA Annuity
The MYGA annuity is ideal for providing short-term growth certainty due to its stable contract value during market fluctuations and fixed period guaranteed growth rate. You will know exactly what your growth rate and contract value will be, and you’ll have the safety of of the insurance provider.
There are a number of other potential benefits:
- It can provide guaranteed payments for a fixed length of time or for the duration of one’s life.
- You have the option of withdrawing your earned interest, or up to 10% of the contract value.
- A MYGA can provide your beneficiaries with a death benefit.
- A MYGA is similar to other short term stable value growth vehicles such as bank CDs but with tax deferred earnings.
- MYGA annuities typically pay a greater interest rate than CDs.
Drawbacks Of A MYGA Annuity
A MYGA has many advantages, but it also has some disadvantages. You should consider the following potential drawbacks when you explore your non-annuity options:
- This annuity is a short-term investment, so other options are better suited for people who can commit to a longer period of time.
- A MYGA contains certain automatic provisions which require policyholder to affirmatively make timely elections and beneficiary designations in order to assure an optimum result for the policyholders. For example, the rate guarantee period and surrender charges will automatically renew if the policyholder does not affirmatively elect another option. While an MYGA provides full liquidity and stable value for certain life events, you may need the added liquidity provided by other products.
- Surrender charges and market value adjustment apply to MYGA annuities, other products do not have these but have other risks and penalties.
- Withdrawals made before the age of 59.5 are subject to a 10% penalty in addition to income taxes.
Contact Pillar Life Insurance Today
If you have any questions or concerns to determine if an MYGA is right for you, please feel free to contact our helpful staff at Pillar Life Insurance. Our highly trained, dedicated staff can guide you through the process in a seamless and stress-free manner to ensure that an MYGA will be in your best interest for building your financial future.