Traditional or Reverse MYGA Ladder Strategies: Shootin' It Straight With Stan
Welcome to Shooting it Straight with Stan. I'm your host Stan The Annuity Man, America's annuity agent licensed in all 50 states. Today's topic is 'Traditional or Reverse MYGA Ladder Strategies', so traditional laddering strategies with MYGAs or reverse MYGA strategies. I'm going to explain both.
Now, MYGAs, Multi-Year Guarantee Annuities, are the annuity industry version of a CD. Life insurance companies issue annuities. They issue MYGAs, and they have a guaranteed yield for a specific period of time. If you want to see the best live feed of MYGA rates for the country and your specific state, go to my site, pull it up, and shop until your heart's content. You don't have to sign up. You can just look at rates.
But traditionally, we're looking at laddering MYGAs. We're doing a short-term ladder, say a three-year, four-year, five-year ladder. Why are we doing that? We're hoping that rates go up. We're hoping to have money coming due and available as rates are rising so we can attach ourselves and lock in those higher rates. That's a traditional ladder, whether you're laddering CDs or bonds or Multi-Year Guarantee Annuities, MYGAs, Fixed Rate Annuities. But ever since the interest rate rises started happening in October of 2022, in the MYGA space, I've been telling people, let's look at the reverse of that. The great thing about MYGAs, as compared to many CDs and bonds, is that MYGAs are not callable. And what does that mean? That means that once it's issued, that yield, that guaranteed annual yield that you've locked in, the annuity company can't call it back. They can't bring the money back, send it to you, and say, "We don't want to pay that high-interest rate anymore."
MYGAs Are Not Callable
So let me give you an example. Let's say at the time of this blog, look at the date, and rates go down three percentage points five years from now, but you locked in a nine-year Multi-Year Guarantee Annuity. The annuity company can't say, "Well, rates are lower, so send us that money. We're going to take the money back. You've got to go find something else." Because CDs and bonds will, not all, but a lot of them will. With Multi-Year Guarantee Annuities, you've locked in that rate.
When I talk about reversing that, traditional laddering is, let's catch rising rates. Reversing is, let's lock in rates because they will be falling. So instead of doing a three, four, and five-year traditional MYGA ladder hoping rates rise, let's do a 10, seven, five, or a 10, nine, seven ladder to lock in the rates because they're not callable.
Lock and Load
With Multi-Year Guarantee Annuities, you have a couple of ways that you can filter how you want to buy them. You could say, "Hey, I just want to lock and load, and I'm not planning on taking any interest out. It's just going to grow and compound." And by the way, you can use MYGAs in IRA money, non-IRA money, and Roth IRA money. It doesn't matter. The contractual guarantees are the same. But think about this for a second. Let's say you went longer on the yield curve. Ten years is the longest we can go; 10-year lock-in and rates go drastically down, and if you've locked in this high rate, you'll be a happy camper.
Now, of course, there are people out there saying, "Yeah, but what if it goes way up?" Well, if it goes way up, like Jimmy Carter way up interest rates back in the day, our country's in trouble because we got 32 trillion in debt. The last time it happened, we didn't have 32 trillion in debt. Think of your mortgage being raised. Think of you raising your mortgage percentages and keep raising it. At some point in time, there's a breaking point. There's a breaking point with our country. We can't keep doing this. But to take advantage of it as a consumer to protect your principal and lock in a guaranteed rate that's not callable, MYGAs make sense, and laddering makes sense.
Longer on the Yield Curve
And I know typically, in some past blogs I did, probably in '21 or '20, I was talking about laddering to catch rising rates. Now we're at the high rates, so let's reverse the ladder and go longer. Go longer on the yield curve. And that's hard for a lot of you. Many of you say, "I really don't want to go past five years. I really don't want to go past three years." I respect that. It's your money. Do what you want.
But what I want to do is put something in your head and say, okay, if you instinctually feel that rates are going to go down, and I do, and maybe I'm wrong, but I'm just thinking rationally and pragmatically, and all of the economics classes I took in college; hopefully, they apply. I think they're going to go down. Would it make sense? Would it behoove you to lock in a little bit longer? So if five is the max, maybe seven. Or if seven is the max in your head, maybe 10, lock in 10, or split it. Maybe you go, "You know what, Stan, it makes my stomach hurt, so I'm going to stay at the five, but I'm going to put half in the five-year and half in a ten-year." I don't think you're going to be mad. I don't think you'll lob a call on me and yell at me. You can. I'll take it.
You Can't Time It
But that's not going to happen because these rates are fair. The bell doesn't ring at the top or the bottom. You know that. So, you can't time it, and you can't watch Boog Powell. I call them Boog Powell because there was a baseball player for the Orioles called Boog Powell, Boog Powell, and Miss Yellen, the Dutch boy haircut; you can't watch them. Who cares? Annuity companies don't; it's not linear. They're not watching them and following everything that they do. A lot of the MYGA rates come down to capacity. How much money's coming into the annuity companies and how much money they want to attract, meaning they'll raise the guarantees to attract that money. Still, they won't raise the guarantee if they're getting in enough money. So, it's not linear.
A lot of times, when Boog Powell raises interest rates, the annuity industry yawns. I mean, you can't time it. There's no sweet spot. There's no arbitrage moment. I know you masters of the universe want it to be, and I always get those questions. There just isn't. You either think that the interest rate is fair, or you do not.
A Contrarian Thought
With MYGAs, you can do a couple of things, like I said previously. You can peel off the interest if you want. You can lock and load if you want. Some allow you to take 10% penalty-free interest out every year, some 5%, some of the interest, and that's listed on my site. But what I want to drill into your head is a contrarian thought. You might want to go longer on the yield curve. You might want to lock in a longer-term paper or longer-term guarantees with MYGAs because they aren't callable. You can't have the contractual rug ripped out from underneath you because the CDs and bonds, when rates go down, will be called on many of them. You want to have some of your money, not callable. They can't get it. So, if rates went in half from here and you have a non-callable MYGA, you will reap the benefit. And that's what I want you to think about.
Now, could rates go up from here? Sure, absolutely. It would surprise me if they drastically went up, but if they did, great, then you get to buy higher rates. But I want you to think about reverse laddering strategies. Typical laddering strategies work all the time, and your time horizon might be short to make the short MYGA strategy make sense, the three, four, and a five-year roll up, what we typically did years ago. But I think the new way to look at it is ten, nine, seven or ten, nine, eight, seven. Reverse it and go longer than you typically would. That's my take.
MYGAs are not callable. MYGAs are the annuity industry version of a CD. MYGAs, if the duration you want to lock in is more than three years, historically, Multi-Year Guarantee Annuities will provide the highest contractual yield out there. If the duration you're looking to lock in is less than three years, go buy CDs and treasuries, and no, I don't sell CDs and treasuries. But that's the way it should work. All right?
Hey, annuities aren't all lifetime income products. Principal protection annuities like MYGAs give you a guaranteed contractual annual yield, which is a good thing. Take advantage of it. Go to my site. Schedule a call with us. You might get me, which is a hoot because I'm this wired when I call you, and I'll call you right on the dot when you schedule. So, with that, I'll see you next time. This is Shooting it Straight With Stan. My name is Stan, the Annuity Man.
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