What is a Multi-Year Guaranteed Annuity (MYGA)
and how does it work?
A Multi-Year Guaranteed Annuity is a type of fixed deferred annuity designed to avoid market volatility, offer tax-deferred growth, and provide a guaranteed income stream in retirement. MYGAs provide a locked-in, guaranteed rate of return for as long as the selected guaranteed period lasts, typically a period between three and nine years.
How does a MYGA work?
You purchase a multi-year guaranteed annuity through a contract with an insurance company. When you purchase a MYGA, you can choose a single premium amount that best fits your financial needs and goals. Minimum and maximum premium amounts vary by company.
The company you purchase your multi-year guaranteed annuity through agrees to pay you a fixed interest rate on your premium amount for your selected time period. You will get interest credited on a regular basis, and at the end of the term, you either can renew your annuity at an updated rate, leave the money at a fixed account rate, elect a settlement option, or withdraw your funds.
What are the benefits of a multi-year guaranteed annuity?
- Guaranteed rate of return. Since a MYGA offers a fixed interest rate that is guaranteed for the contract's term, it can provide you with a predictable return.
- Protection from market volatility. With rates that are set by contract for a specific number of years, MYGAs are not subject to market fluctuations like other investments.
- Tax-deferred growth. Like other annuities, you do not pay taxes until you withdraw money from your MYGA, so you can maximize your returns over time.
- Access to guaranteed income in retirement. MYGAs can be used as part of a retirement strategy, where you can elect a settlement option that can provide a steady source of guaranteed income for as long as you live.
- Leaving a legacy. You can leave any remaining assets to the beneficiaries you choose. These funds can be given to loved ones or to the causes you care most about.
What is a typical MYGA rate?
MYGA rates can change often based on the economy, but they are typically higher than what you would earn on a savings account.
How do MYGA withdrawals work?
- Some MYGAs allow you to take penalty-free withdrawals before the end of the contract period. Your withdrawal terms will depend on your exact MYGA contract, but generally, you can take out a certain percentage of your annuity's accumulated value each year without facing a surrender charge, sometimes called a "free surrender." Beyond that, withdrawals before the end of the term may involve fees and penalties that typically range from 1% to 10%.
What happens when the multi-year guarantee annuity term ends?
At the end of the MYGA period you have selected, you have several options:
- Choose another multi-year period If having a guaranteed interest rate for a set number of years still aligns with your financial strategy, you simply can renew for another MYGA term, either the same or a different one (if available). The rate for the new guarantee period will generally be based on rates available at renewal time.
- Elect a settlement option MYGAs offer contract owners the ability to elect a settlement option that can guarantee annuity payments for life or a specified period of time.
- Surrender the contract and take the value
MYGA vs. CD: What's the difference?
Unlike insurance products, certificates of deposit (CDs) are banking products. But both offer multiple guaranteed fixed rate options and are good options for guaranteed returns. However, there are some differences between the two:
- MYGAs generally offer a higher interest rate than CDs. While both offer guaranteed rates of return, MYGAs often offer a higher interest rate than CDs.
- MYGAs grow tax deferred while CDs are taxed as income annually. Annuities grow tax deferred, so you do not owe income tax on the earnings until you withdraw them. This allows your earnings to compound over the term of your MYGA. In contrast, unless a CD is held in a retirement account (such as an IRA), the interest it earns is taxed annually. This reduces the potential for CDs to benefit from long-term compound interest.
- MYGAs are issued by insurance companies while CDs are issued by banks or credit unions.
Both MYGAs and CDs typically have early withdrawal penalties that may impact short-term liquidity.
With MYGAs, surrender charges may apply, depending on the type of MYGA you choose. So, you may not only lose interest, but also principal—the money you originally contributed to the MYGA. With CDs, interest rate penalties may apply for early withdrawals. This means you may lose interest but not the principal amount contributed to the CD.
Who should consider getting multi-year guaranteed annuities?
Their conservative nature often appeals more to people who are approaching or already in retirement. But they might not be right for everyone.
A multi-year guaranteed annuity may be right for you if you want to:
- Take advantage of a guaranteed rate and lock it in for a period of time.
- Enjoy protection from market loss.
- Benefit from tax-deferred earnings growth.
- Have the option to select a settlement option for a guaranteed stream of income that can last as long as you live.
As with any type of savings vehicle, it is important to carefully review the terms and conditions of the product and consult with us to determine if it is a wise choice for achieving your individual needs and goals.
The bottom line on MYGAs:
- Your premium will earn a fixed rate of interest for the time period you choose.
- They are tax-deferred so you will delay paying taxes until funds are withdrawn.
- You can leave any remaining assets to beneficiaries.
When you are looking for investment solutions that offer stability and security—especially in an uncertain market—your options are not just limited to CDs and high-yield savings accounts in retirement.
You may want to consider a Multi-Year Guaranteed Annuity (MYGA). It is a fixed-deferred annuity that allows you to take advantage of a high interest rate environment with locked-in interest rates that are not impacted by market performance.