Is a Multi-Year Guarantee Annuity Right for You?

If you’re nearing or in retirement, the news reports of volatile markets and taxes may have you checking if your financial strategy is equipped to deal with these risks. In your review of financial options, you may have come across the acronym MYGA or multi-year guarantee annuity.

“It’s a type of 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,” says Steve Sperka, vice president, Solutions Design, Implementation and Support, at Thrivent.

How does a MYGA work?

A MYGA is purchased through a contract with an insurance company. At purchase, you choose a single-premium amount that fits your needs and goals. The company then pays you a fixed interest rate for the time period and product version you select, based on the options available. Interest is credited on a regular basis.

What are the benefits of a MYGA?

A MYGA offers a fixed interest rate for the entire time period you selected, which means you’ll have a predictable return. It’s not exposed to market fluctuations, and you don’t pay taxes on the growth until you withdraw it. A MYGA can give you access to guaranteed income in retirement and enables you to leave a legacy with any remaining assets.

What are the risks of a MYGA?

Fees and surrender charges may apply if you take money out early or surrender the account. Since MYGAs offer a fixed rate of return, they may not keep up with inflation and they may have lower returns than stocks or mutual funds over the long term. MYGAs are backed by the insurance company you purchased from and are not federally insured.

What happens when the MYGA term ends?

There are several options. You can choose another multi-year term, either the same or a different one if available. However, the interest rate for the new period would be based on rates available at renewal time. You can let it move automatically to a fixed account with a renewable one-year interest rate determined by the company. You may elect a settlement option. Finally, you can withdraw its accumulated value, either as a lump sum or partial withdrawals, with no surrender charge.

“With market volatility and the high interest rate environment, this is an option that means you don’t have to leave money on the sidelines,” Sperka says.