Multi-Year Guaranteed Annuities (MYGAs)
A Multi-Year Guaranteed Annuity (MYGA) is available for individuals who prioritize predictability, and pre-determined growth. It offers a straightforward way to grow savings at a fixed interest rate that is set for a specific term, with no exposure to market volatility. MYGAs are commonly used by pre-retirees and retirees who want pre-determined returns set in advance, protection of principal, and a simple structure for a portion of their retirement savings.
How a Multi-Year Guaranteed Annuity Works
When you purchase a MYGA, your premium is placed into an annuity contract which provides a set interest rate for a defined period, typically ranging from three to ten years depending on the term you choose. Your money grows at this fixed rate and is not subject to stock market volatility. The rate is locked in at purchase and never changes during the period. At the end of the term, you may renew the contract at a new current rate, or you have the option to withdraw your funds, transfer to another annuity, or begin taking income. This structure provides:
- Pre-Determined fixed rate for the entire term
- Complete protection from interest rate fluctuations and market volatility
- Predictable growth with no surprises or annual rate changes
Key Benefits:
Principal Protection: Your initial investment is fully protected. There is no direct market risk, and your account value won’t decrease due to external financial markets or economic conditions.
Fixed Growth: Unlike savings accounts with variable rates or traditional fixed annuities where rates may change annually, MYGAs lock in a specific interest rate for the entire contract term, providing complete certainty about your future account value. You know exactly what your money will grow to at maturity.
Simple and Transparent: MYGAs function similarly to certificates of deposit (CDs) but may often offer higher rates and tax-deferred growth. There are no complex crediting methods, caps, spreads, or participation rates to understand, just a simple pre-determined interest rate.
Lifetime Income Options: At maturity, many MYGAs offer the ability to convert your accumulated value into income payments for life, providing predictable income no matter how long you live.
Tax-Deferred Growth: Interest earned within the annuity grows on a tax-deferred basis, meaning taxes are not owed until withdrawals are taken. For non-qualified annuities, withdrawals are taxed as ordinary income on a Last-In-First-Out (LIFO) basis, with earnings withdrawn first.
Death Benefit Protection: Any remaining account value generally passes directly to your beneficiaries, often avoiding probate.
Fees, Withdrawals & Surrender Charges
MYGAs typically include a surrender period that matches the interest rate guarantee period, commonly ranging from three to ten years depending on the term selected. During this time, withdrawals above the contract’s free withdrawal amount may be subject to surrender charges. Most contracts allow you to withdraw up to 10% of your account value each year without penalty, even during the surrender period. This provides access to funds for emergencies or unexpected needs while maintaining your guaranteed rate. Optional riders, such as enhanced liquidity provisions or nursing home waivers, may be available and are clearly disclosed in the contract.