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MYGAs are NOT Callable: Shootin' It Straight With Stan

Stan Haithcock
August 23, 2023

Welcome to Shootin’ It Straight With Stan. I am your host, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. I encourage you to go to my site to run quotes on our calculators, get my books, watch videos, podcasts, and all of that stuff. But today's topic is MYGAs are NOT Callable, and this is very important in the world that we're living in right now with rising interest rates and people wanting to lock them in. What do you do? How do they differ from bonds or CDs or things like that?

What Is a MYGA?

First of all, let's talk about what a MYGA is. Acronym, M-Y-G-A. Multi-Year Guarantee Annuity. That's the annuity industry's version of a CD. It is not an income annuity, and it is not annuitization. It is giving the money to the life insurance company that issues the annuity. Then they will contractually guarantee an annual yield for the duration you choose. Now if you go to my site, we have the best live feed of all MYGA rates in the country. You can shop for your specific state. Why your specific state? It's because Fixed Annuities, and there are many different types, but MYGAs are Fixed-Rate Annuities and are approved at the state level. So, you'd have to put in your state and then whatever duration you're looking at, two years, one year, three years, five years, seven years, or 10 years. 10 years right now is the longest term that you can lock in.

Callable Features

So, let's talk about callable features. In my previous life at Morgan Stanley, UBS, Paine Webber, and Dean Witter, I was very adept at bonds. Whether corporate or municipal bonds, etc. But those types of bonds typically had call features. What does that mean in English, Stan The Annuity Man? Call features mean that if interest rates go down after you purchase the highly yielding bond, some provisions allow that issuing entity to call that money back. They're saying you're not going to get that yield anymore, we're going to give you your cash back, and you've got to go find something else.

The same is true with many high-yielding CDs, Certificates of Deposits that can be issued at banks and/or brokerage firms. So, for instance, if you went to Vanguard or Fidelity or any of the large banks or small banks or credit unions, they have CDs, Certificates of Deposits. But a lot of those high-yielding CDs, not all, but a lot, are callable, which means that the chunky, yummy, high-interest rate that you're getting, the bank and/or brokerage firm, whoever issued that CD can call it back. They can say, "All right, we're not going to do that anymore with the interest that you love, but here's all of your money back with interest accrued up to that point," whatever those provisions are within that contract.

Protecting the Principal

Now, CDs and Multi-Year Guarantee Annuities, in my opinion, are one and the same. The difference is who's guaranteeing the interest rate. But MYGAs, to me, should dovetail and coincide with treasury, CDs, money markets, et cetera. It's protecting your principal. You're not spending any money on fees, gotcha fees, hidden fees, or management fees. It is a guarantee of that yield for a specific period of time that you choose. And MYGAs, they're not all the same. And the fact that you can have some liquidity features that allow you to take out interest only. Some allow you to take out 5%. Some allow you to take out 10% annually. From a liquidity standpoint, you don't have to, but you can.

But I think people are missing one of the biggest value propositions with MYGAs, and I'm out here, Stan The Annuity Man, to point it out. I think we all can agree that with 32 trillion in debt and counting, however you want to count that, but that clock that's on the wall, that's on the building somewhere in New York that you walk by and go, "Oh my gosh, that's a lot of debt." The government, the United States government, can't continue to keep raising interest rates to service that debt. It would be like me and you having a mortgage together and raising the mortgage percentage. At some point in time, there's a breaking point where it doesn't make any sense.

Less Than or More Than 3 Years

So, at the time of this blog, please look at the date. Interest rates with MYGAs are very fair, in my opinion. And I have a rule of thumb. If your duration that you're wanting to lock in is less than three years, then you should look at CDs and treasuries, and I do not sell CDs and treasuries. But if your duration that you want to lock in is three years or more, you will find that MYGAs, Multi-Year Guarantee Annuities, Fixed-Rate Annuities, the annuity industry version of a CD, will offer a better contractual yield.

Not Callable

And that's very important right now because I don't know if we're at interest rate tops, the bell didn't ring at the top or the bottom as all of us know, but I think instinctually, all of us are saying, "You know what? They're probably going to lower rates." And if you think that, then it might make sense to go a little bit longer on the yield curve. And what I mean by that is most people don't want to lock in guarantees for a very long time. And typically, when we were waiting for rates to rise, I'm like, "Let's either ladder it with a 2, 3, 4, or 5-year ladder. 5 years is kind of the sweet spot." But I want you to consider maybe going longer on that yield curve. Locking in 10 years, guaranteed interest rate or 9, 7, 8, whatever. Why? Because it's not callable, and that's important.

I am going to pound the table right now, and I will take the calls in. If you're mad. 5, 6, or 7 years from now, and you've locked in long-term guaranteed interest rates with MYGAs; I'm pretty sure you'll be happy with that. You're not going to be disappointed. And if you are, you have a really good interest rate, and that's fine. I guess that's the risk you're taking. But with all of the other CDs and bonds, check and see if they have call features. Check and see if they can be called back if interest rates start going down. Multi-Year Guarantee Annuities, MYGAs, are not callable. They are guaranteed for the term that you lock in.

So, if you lock in a 10-year term and interest rates drastically decrease, the annuity company can't call that back in. They can't pull the rug out from under you contractually. They have to honor that contractual yield you've locked in for that long term. We often talk about laddering MYGAs, short-term ladders, and typically when we do that; we're trying to catch rising rates.

I want you to think a little bit differently. Let's think reverse ladder, meaning let's go a bit longer on the yield curve instead of a ladder of 3, 4, and 5 years. How about a ladder of 10, 9, 7 or 10, 9, 8, or 10, 7, 5, because you want to lock in guarantees if you instinctually feel like I do, that interest rates eventually will go down.

The key takeaway here is MYGAs are not callable. So, it might make sense to lock in those guarantees and peel off the interest, live off the interest, not touch the principal, or just let it grow and compound. Remember, MYGAs can be used in IRA, non-IRA, and Roth IRAs. It doesn't matter. The guarantees are the same. It depends on if you're taking money out, the taxation of that money coming out. So very, very important. MYGAs are not callable. Does it make it better than bonds and CDs? No. But it is a distinctive point and the distinctive fact and feature of that product, MYGAs, that you need to put in the back of your head, especially if you're looking for guarantees and looking to lock in that yield.

One last thing to understand. The underlying value of MYGAs does not fluctuate like bonds or some CDs. The principal is protected. You aren't going to pay any fees. There are no hiddens and gotchas. At the end, if you've taken all the interest out, you're going to have the original principal waiting for you. But hey, you just might think about, this thing's not callable. I might want to lock in a little bit longer than I typically do. My name is Stan The Annuity Man. That's Shootin' It Straight With Stan. See you next time.

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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