Multi Year Guarantee Annuities (MYGAs) are also called Fixed Rate Annuities because that is exactly what the product does. It provides a fixed rate. MYGAs contractually guarantee an annual percentage for a specific period of time. MYGAs can be easily compared to CDs because they function and are structured almost the same.
The main difference between a MYGA and a CD is that when used in a non-IRA (i.e. non-qualified) account, the annual interest grows and compounds tax deferred with a MYGA. With CDs used in a non-IRA account, taxes are paid annually on the interest earned.
So if you are not familiar with Multi-Year Guarantee Annuities (MYGAs), then it’s time to get educated. In my world of owning an annuity for what it “Will Do. Not might do,” MYGAs are pure contractual guarantees and are a simplistic transfer of risk solution that can easily fit in most fixed income portfolios looking for full principal protection.
Historically, MYGAs outperform CDs from a contractual yield standpoint when you compare similar lock-in periods. In a world of perceived low-interest rates, the higher the contractual guarantee the better in my opinion, which is the reason MYGAs should be included in every fixed rate conversation.
MYGAs should be a strategy for consideration if your time horizon is 3 years or more. If it’s less than 3 years, then you should most likely turn to CDs or Money Market products if a guaranteed fixed rate is the goal. If it's 3 years and out, MYGAs typically provide the highest contractual yield available.
In this episode, The Annuity Man discusses:
- What is a MYGA and how does it work
- The benefits and limitations of a MYGA
- Differences and similarities between a MYGA and a CD
- How to ladder MYGAs to take advantage of future interest rates
- MYGAs (Multi-Year Guarantee Annuities) are a fixed rate annuity and are the annuity industry’s version of a CD
- MYGAs usually offer a higher rate than CDs if the duration is 3+ years out
- MYGAs & CDs can be combined for fixed rate laddering strategies
- Some MYGAs allow you to peel off the interest every month for additional income needs
Fun with Annuities Podcast is hosted by America’s Annuity Agent, Stan Haithcock, The Annuity Man. Hear brutal annuity facts with no sales pitches from the top independent agent in the country, licensed in all 50 states. Author of 7 books, Stan dives deep on all annuity types and strategies. It’s fun, learning the contractual truths on how annuities actually work and if they’ll fit your personal retirement lifestyle. Listen in on how you can be livin’ the reality, not the dream.
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