Deferred Annuities: SPDA/FPDA/MVA
Annuity Acronyms to Know
We're talking today about Deferred Annuities and some acronyms that no one knows until you get your policy. SPDA, FPDA, MVA. What the A is that, right? Who knows? I'm going to tell you because you need to know. And it's something in the annuity secret sauce that no one seems to ever address. But of course, yours truly, Stan, the Annuity Man, America's annuity agent, is going to go over all of that today.
One of my team members got a call the other day, and the call was this, "Hey, we filled out the application. I got my policy in the mail from Stan The Annuity Man, and I'm reading through the policy, and it says, up at the top, SPDA. What does SPDA mean? I thought I bought a MYGA, a Multi-Year Guarantee Annuity." Well, let's talk about that. SPDA stands for Single Premium Deferred Annuity. Break it down. You gave the annuity company a lump sum, in this case, the MYGA, which is the annuity industry version of a CD. That annuity company will hold onto the money and then accredit an annual interest rate to you. But you get the policy, you go, "SPDA, what the heck is an SPDA?" You could also have gotten a Fixed Index Annuity. Same thing. On the policy, "Hey, Stan, I bought this Fixed Index Annuity, but I see SPDA on there." Now, if we're going to look philosophically at all of this, why would the annuity industry and their lawyers put this on the policy and make it confusing? I don't know. I think it's an evil plot so you can call me and we can talk more. And that's a good thing. You can always contact me by booking a call, but SPDA means Single Premium Deferred Annuity. You gave the single amount, the lump sum, to the annuity company, and it's a Deferred Annuity, in this case, a Multi-Year Guarantee Annuity or in this case, a Fixed Index Annuity. So that's SPDA. What's FPDA? Flexible Premium Deferred Annuity. You get the policy in the mail, and it says on the top, Flexible Premium Deferred Annuity. You're like, "wait a minute, I thought I bought an Index Annuity." Well, a Flexible Premium Deferred Annuity means that you gave the lump sum to the annuity company for the contractual guarantees that we discussed, and you decided, and I recommended it because it was suitable and appropriate. Because you only buy annuities for what they will do, not what they might do. And the will do is the contractual guarantees of the policy. But a Flexible Deferred Premium Annuity means that the annuity company will allow you to add money to the policy after it's issued. Not all do that, some do, but some don't. Hopefully, when we talk, you can tell me, "Hey, I'm planning on putting more money in over time." And if that's the case, I will shop all carriers that allow the Flexible Deferred Premium Annuities.
Flexible Premium Deferred Annuities
Now, most, at the time of this blog, look at the date, but most Multi-Year Guarantee Annuities are not Flexible Premium Deferred Annuities. You can't just keep adding to it. But there are some, and I count them on my hand, that allow that. And once again, communicate that to me if that's what you want to achieve and that you want to put money in over time. Most Indexed Annuities and Fixed Indexed Annuities will allow you to add money to the policy after it has been issued. So that covers Single Premium Deferred Annuity and the Flexible Premium Deferred Annuity. That's what that means when you get your policy, or if you're saying I don't know if this, I even hate to bring this up, or if you bought it from someone else like your brother-in-law or your sister-in-law, your cousin, or your wife, or your husband if they're an agent. Even then, you have to think to yourself, do you want to do that? Why wouldn't you want to deal with Stan The Annuity Man? Now you know what that means.
Market Value Adjustment (MVA)
The last A we will talk about is Market Value Adjustment. Once again, the annuity industry has made it a little complicated when it comes to Market Value Adjustments. And most of the time. Market Value Adjustments apply to Single Premium Deferred Annuities, Flexible Deferred Premium Annuities, Multi- Year Guarantee Annuities, and Fixed Index Annuities. In my case, I only sell fixed products because you only own an annuity for what they will do, not what they might do, and that's the fixed side, and that's what I believe in passionately. You might get your policy in the mail, and you're flipping to page 17 of the policy, and you see this, it probably knocked a scab off because you're like, "wait a minute, that looks like calculus two." There's this formula in there like X V Y, the square, the thing over the thing, and you're like, "ah, oh my God, there's that math class I hated. I just hated it." Or you're like a math dude, and you're like, "oh, I love that. I want to know what that is."
What is Market Value Adjustment? And why is that even important to the policy? It is only important if you hold the policy through the surrender charge time period. I'll give you an example. Let's say you have a five-year Multi-Year Guarantee Annuity that will pay a specific interest rate for every year for that five years. If you don't cash that baby in, then the Market Value Adjustment doesn't apply. But let's say, in that same example, you bought the five year, it was suitable and appropriate, and at about year three, your life changes, and you want to pivot. You're like, "You know what, Stan The Annuity Man, my life has changed. I'm doing something else. I'm touring with a rock band. I need this money. I want to cash it out." That's when the Market Value Adjustment comes into play. We can get in the weeds with this, but as you know, Stan The Annuity Man, America's annuity agent, I make things simple. I'm the annuity whisperer and can explain these things to you.
So we're going to talk about Market Value Adjustments. Here's the bottom line. When you buy the annuity, let's say, in this case, a Multi-Year Guarantee Annuity, and interest rates go up after you purchase it. Your Market Value Adjustment is going to make the surrender charges higher.
Does that make sense? The reverse is true. If you buy the Multi-Year Guarantee Annuity and interest rates go down after you purchase it, the surrender charges also go down. And in some cases, your Market Value Adjustment, you can buy a five-year Multi-Year Guarantee Annuity, and interest rates go way down after you purchase it. You could get out of it in two years. That could happen. But really, that's all you need to know about Market Value Adjustments, MVA. MVA, that's all it means, but people get caught up in it. They'll see Market Value Adjustment, and they'll go, "but does that apply?" No, it does not apply if you hold the policy to the surrender charge time period. Whether it's three or five years, or seven years, it doesn't apply. It only applies if you pivot, change your mind in the middle of the policy inside that surrender charge time period, and decide to cash it out. You can do that. It's your money. If that happens, there are surrender charges, but the Market Value Adjustment can either make those surrender charges higher or lower, and in some cases, eliminate them altogether.
Hopefully, I was crystal clear on SPDA, FPDA, and MVA. And if not, you can always book a call, and you can get me one-on-one unless I'm sick or in the bathroom or something like that. But 98.7% of the time, you're going to get me, and we'll talk for 30 minutes, one on one, non-salesy, just brutally factual. It'll be the best investment advice or advice, in general, you're going to get. I love talking to people about what they're trying to achieve, and I'll be brutally honest. If you don't need an annuity, I'll tell you. I will. Don't believe me? Try me. Do me a favor, and look at all of our edutainment content. We have videos, podcasts, and the best annuity calculators on the planet. You can run calculators for Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Income Riders. We even have a Multi-Year Guarantee Annuity live feed. We have everything because we are trying to make our website the place where annuities are bought, not sold. Now, yes, I do sell them, but we want you to decide on your terms and timeframe.
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