What Is a 3-Year Fixed Annuity?

What is a 3-year Fixed Annuity?

It sounds like a simple question.

But in the annuity industry, it is actually a little more complicated than that.

Because a “3-year Fixed Annuity” can mean a few different things depending on what you are trying to accomplish.

Key Takeaways

• A 3-year Fixed Annuity is often a MYGA, the annuity industry’s version of a CD
• MYGAs provide fixed interest rates with tax-deferred growth
• A 3-year annuity can also refer to a period certain Immediate Annuity
• Some people defer lifetime income for three years before payments begin
• The right annuity depends on your contractual goal
• Fixed Annuities should be purchased for guarantees, not hypothetical returns

The Most Common Meaning: A MYGA

Most of the time, when people say “3-year Fixed Annuity,” they are talking about a:

Multi-Year Guarantee Annuity (MYGA).

That is the annuity industry’s version of a CD.

The difference is:

• Banks issue CDs
• Life insurance companies issue MYGAs

With a 3-year MYGA, the interest rate is locked in for three years.

How a MYGA Works

A MYGA provides:

• Principal Protection
• a fixed contractual rate
• tax-deferred growth in non-IRA accounts

Unlike a CD, you do not pay taxes annually on the interest if the MYGA is held outside of an IRA.

The interest compounds tax deferred until you take money out.

MYGAs Can Be Used in Multiple Account Types

A 3-year MYGA can be used with:

• Non-IRA money
• Traditional IRAs
• Roth IRAs

The product stays the same.

The taxation changes depending on the account type.

Another Meaning: A 3-Year Immediate Annuity

A 3-year Fixed Annuity could also refer to a:

Period Certain Immediate Annuity.

That means the annuity pays income for a specific period of time, such as:

• 3 years
• 5 years
• 10 years

This is different from a lifetime income annuity.

Why Someone Might Use a 3-Year Immediate Annuity

Sometimes people only need income temporarily.

For example:

• bridging the gap before Social Security
• waiting for another pension to start
• covering a short-term income need

In those cases, a short-term Immediate Annuity may fit.

Deferring Income for 3 Years

A third meaning is:

You want lifetime income to begin in three years.

That could involve:

• Income Riders
• Deferred Income Annuities
• Qualified Longevity Annuity Contracts (QLACs) if using IRA money

The annuity defers for three years and then starts lifetime income payments afterward.

The Two Questions That Matter

This is the key.

Instead of asking only:

“What is a 3-year Fixed Annuity?”

You should ask:

What do I want the money to contractually do?

And:

When do I want those contractual guarantees to start?

Those two answers determine which annuity actually fits.

Buy Guarantees, Not Projections

A Fixed Annuity should never be purchased based on:

• hypothetical returns
• backtested illustrations
• projected growth charts

You own an annuity for what it will do, not what it might do.

That means focusing on the contractual guarantees.

Where to Compare 3-Year Fixed Annuities

If you want to compare 3-year MYGA rates or model short-term and lifetime income options, you can do that using our annuity calculators here: https://www.stantheannuityman.com/ annuity-calculator/

The Bottom Line

A 3-year Fixed Annuity can mean different things.

It could be:

• a 3-year MYGA
• a short-term Immediate Annuity
• or a deferred lifetime income strategy

The right answer depends on your goal and when you want the guarantees to begin.

That’s why the real focus should always be on the contractual outcome you are trying to solve for.