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MYGA vs. Fixed Annuity

Stan Haithcock
April 11, 2024
MYGA vs. Fixed Annuity

Welcome back. I'm Stan The Annuity Man. Today we're going to talk about Multi-Year Guarantee Annuities versus Fixed Annuities. What you're really going to find out today is what a Multi-Year Guarantee Annuity is as opposed to just a Fixed Annuity, or are they the same thing? So, hang in there with me. This is going to be interesting.

‌Boy, do we have much to cover today on Multi-Year Guarantee Annuities and Fixed Annuities. First, we will discuss whether a Multi-Year Guarantee Annuity is a Fixed Annuity. Then, we'll dive into what a Multi-Year Guarantee Annuity is and what it solves. We'll also talk about the other types of Fixed Annuities because there are many different types. So, when you hear people say, "I hate all annuities," it's like saying I hate all restaurants, or I hate all shoes; it's crazy. It's uninformed and misleading. We're going to talk about all Fixed Annuities. I will review the benefits and the limitations of Fixed Annuities and Multi-Year Guarantee Annuities and let you know where they fit into your portfolio.

‌What Is a MYGA?

‌What is a Multi-Year Guarantee Annuity? It is a Fixed Rate Annuity. It's like a CD, and in fact, it's the industry, the annuity industry's version of a CD. What is a CD? You're probably familiar with that. You give the bank or a brokerage firm some money and they guarantee an interest rate for a specific period of time, like a one-year CD or a three-year CD. Multi-Year Guarantee Annuities and Fixed Rate Annuities are the same thing, with the same principle. You give the insurance company money, and they guarantee a specific interest rate for a specific period of time. The difference primarily is with a CD and a non-IRA account; you have to pay taxes on the interest every year. The interest on a Multi-Year Guarantee Annuity in a non-IRA account compounds tax deferred. So, a Multi-Year Guarantee Annuity solves for principal protection; it's your safe money. It's CDs, money markets, AAA, AAA municipal bonds, and treasuries.

‌Then you have the Fixed Rate Annuities, Multi-Year Guarantee Annuities. It's where you don't want to lose a penny. It's where you don't want the markets to mess with your principal. You want to protect that principal. You want to get an interest rate. And with Multi-Year Guarantee Annuities, most of them allow you to peel off interest, but some don't. If you don't need the interest to come out, you can choose one with a really high guarantee for that specific period of time. Or if you say, "Hey, I want the guarantee, but I also want to peel off that interest every month," we can find those for you as well. Let's briefly talk about Fixed Annuities just as a category because, once again, people say, "I hate all annuities." Come on. That's like saying I hate all restaurants. You can't say that.

‌Fixed Annuities

‌Fixed Annuities could mean Multi-Year Guarantee Annuities. Other types include Qualified Longevity Annuity Contracts, Deferred Income Annuities, and Single Premium Immediate Annuities. When you say Fixed Annuity, it's a pretty broad topic. Some solve for income, and some solve for principal protection. But what we're talking about primarily today is principal protection using a Fixed-Rate Annuity, also called a Multi-Year Guarantee Annuity. There are all these different types of Fixed Annuities. Go to my video on choosing an annuity and find out the details on how to figure out which one is best for you.

‌The Benefits

‌What are the benefits of Multi-Year Guarantee and Fixed-Rate Annuities? Principal protection. The market won't disrupt the principal. You can peel off interest with some of them, and some of them you can't. It's a guaranteed interest rate inside an IRA, just like a CD would be outside an IRA.

‌The interest grows and compounds tax-deferred with CDs; you'd have to pay taxes on that annual interest, but both are perfect products for principal protection; both CDs and Multi-Year Guarantee Annuities are safe money products. Both work in your portfolio. One's not better than the other; you just shop all of them for the highest contractual guaranteed rate for the specific term. If you're saying, "I need a three-year guarantee," shop both CDs and Multi-Year Guarantee Annuities and choose the one that fits best for your situation and what account you're using it in. Typically, Multi-Year Guarantee Annuity rates are higher than CD rates for three years and out. Three years and in, CDs are competitive and sometimes beat Multi-Year Guarantee Annuities. However, three years out, a Multi-Year Guarantee Annuity provides the highest contractual guarantee.

‌That doesn't mean you have to buy one, but if you're looking for the highest contractual guarantee, those are the parameters that I look at. Also, remember, just like CDs, Multi-Year Guarantee Annuities have no annual fees, and you can buy them in IRA or non-IRA accounts. You can hold them in a Roth account as well. And finally, one of the benefits that I love with Multi-Year Guarantee Annuities, and which also can be used with CD certificates of deposit, is what I call laddering.


‌In other words, if you had a set amount of money, let's say you had $120,000, and you said, "You know what, Stan, I don't know where interest rates are going, but I don't want to lock in too long of a term, and if they move, I want to have money come and due." Here's the way to ladder that: with $120,000, instead of trying to be a genius and think you know where rates are going because none of us know, you take $40,000 and buy a three-year MYGA, Multi-Year Guarantee Annuity, $40,000 and buy a four-year Multi-Year Guarantee Annuity and $40,000 and buy a five year.

‌What's happened there? You've laddered the durations, meaning that you'll have money coming due starting in year three, and hopefully, we can transfer that Multi-Year Guarantee Annuity to a higher rate. Remember, with Multi-Year Guarantee Annuities, you can transfer from one to the other without creating any type of tax consequence. Let's talk more about laddering.

‌A gentleman called me the other day and said, "You know what, I want to do a ladder, like one year all the way out to seven years." I said, "Fine, that's perfect." We shopped all rates on my site, The Annuity Man , for MYGAs, and I told him to go to Bankrate, which has the best place to shop for CDs nationally. So, what did he end up doing? He ended up buying a one-year CD, a two-year CD, an actual three-year CD, and then he bought a four, five, and seven-year MYGA.

‌He had laddered across the board and had money coming due starting in year one. He got the highest contractual guarantees with the product. The CDs had some higher contractual guarantees at the low end of the duration, and then the MYGAs had the high end of the duration. That's the way to ladder using CDs and Multi-Year Guarantee Annuities.

‌The Limitations

‌Let's talk about the limitations of Multi-Year Guarantee Annuities. First of all, not all carriers offer them. Some do, some don't. When you go to The Annuity Man and pull up our live MYGA feed, you put in your state and the duration, and you'll see what's approved in your state. Also, the surrender charges are very high. Let's say, for example, you bought a five-year Multi-Year Guarantee Annuity and wanted to cash it out in year three; it will be a high surrender charge to get out.

‌Understand if you hold that Multi-Year Guarantee Annuity to the term, to the end of the term, there are no surrender charges. Still, they have to charge those high surrender charges to lock in that guarantee to contractually guarantee that amount of money.

‌Another limitation is that even though it's kind of a benefit, the benefit is in a non-IRA account, Multi-Year Guarantee Annuity interest and gross tax deferred. But the limitation coming back is that you and I both know the IRS; they will eventually tap you on the shoulder and say, "Hey, we need those taxes." So, when you take money out of a Multi-Year Guarantee Annuity, they will be taxed. Those gains are going to be taxed first. Last in, first out, and that money taken out is taxed at ordinary income levels. "So, Stan The Annuity Man, where do I shop for these wonderful Multi-Year Guarantee Annuity rates you're talking about?"

‌Well, I'll tell you where you go. You go to The Annuity Man; you don't have to sign up. It'll take you to a live MYGA feed, where you're asked a few questions. What's the state you live in? What duration do you want to see? Then, you can shop around until your heart's content and find the best contractual guarantees that Multi-Year Guarantee Annuities have to offer for your state. Because remember, Multi-Year Guarantee Annuities and Fixed-Rate Annuities, are regulated at the state level. It's important to go to my site and filter the state and duration you're interested in.

‌Where Do MYGAs Fit?

‌Where does the Multi-Year Guarantee Annuity fit in your portfolio? Safe Money, CDs, AAA, AAA municipal bonds, treasuries, and places you don't want to lose a penny of your principal but still want interest in. That's where Multi-Year Guarantee Annuities fit. IRA, non-IRA, Roth IRA, is a place for you to protect your money. You might want to call it treading water. If you don't want to put money in the market and you're a little bit scared of the market, but you want to still protect the principle and make some interest, Multi-Year Guarantee Annuities.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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