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Multi Year Guaranteed Annuities

RetireByDesign believes Multi Year Guaranteed Annuities could be an option for their financial advisory firm in Warner Robins.  In 2008 Interest rates began to tumble downward leaving many retirees in Warner Robins subjected to reinvestment risk. Each time a fixed rate annuity or Certificate of Deposit (CD) matured for renewal, the retiree was faced with a lower interest rate, which reduced their annual retirement income. By 2012, the five-year interest rates on CDs were hovering just above .50%. The low interest rates coupled with a rising inflation rate on necessities left many retirees in with a negative real return on their CD investments. Many investors began to search for alternative short-term, safe-money investing solutions.

Some retirees in Warner Robins chose a solution for their short-term, safe-money needs in Multi-year Guaranteed Annuities, also known as MYGAs. MYGAs are fixed annuities that guarantee a declared interest rate for a pre-set number of years. These types of fixed rate annuities are issued by insurance companies with surrender periods.

MYGAs are similar to CD’s, which are issued primarily through the bank industry. The similarities between these two products could be: short- to mid-term investments, declared interest rates for the duration of the product’s term, and being classified as safe money investments. Several retirees use these products as short-term accounts during retirement and as an emergency fund.  Comparing MYGA’s and CDs would be like comparing a zebra to a horse, even though they look similar they are very much different animals. Some differences between MYGAs and CDs are  tax-deferral versus annual taxable, allowing for additional deposits, liquidity options during the product’s term, offering a lifetime income option, and beneficiary solutions on qualified accounts. MYGAs offer most of the features that CDs offer plus many more.

Typically, MYGAs offer higher interest rates than CDs, but that is not the only factor investors want to evaluate when considering these two investments.

Leslie Hammock with RetireByDesign said that he is often asked, “Which safe-money investment is right for me”? He went on to say that annuities offer more features and flexibility than CDs, but that does not always mean that they are the most appropriate investment account for safe-money investing. Typically, investors that are in their accumulation years will purchase CD’s while, people nearing retirement and retirees will opt for MYGA’s.

Often, the reason annuities could be a better option for those who are age 59 ½ or older; or for those who do not intend to withdraw all interest or principal (on IRAs) until normal retirement age, is that they can be subject to IRS early withdrawal penalties. No matter if the owner has funded with pre- or post-tax dollars, the owner can be penalized by the IRS if taking withdrawals of taxable dollars before age 59 1/2. The IRS early withdrawal penalty does not apply to owners older than age 59 ½ or the beneficiary(ies) of the MYGAs when the owner passes regardless of their age.

Another reason Leslie Hammock, says MYGA’s could be ideal for retirement, would be due to the Triple Compounding.  With a MYGA’s tax deferral benefit the investor receives compounding interest: interest on the principal, interest on the interest, and interest on the tax-deferred earnings. He also said that interest will compound through tax-deferred growth each year and accumulate more quickly than a taxable CD.

If you would like to learn more about MYGA’s and your retirement, please call 478-329-0339 speak with one of our investment advisor representatives or click

Investment advisory services offered through Virtue Capital Management, LLC (VCM), a registered investment advisor. VCM and RetireByDesign are independent of each other. For a complete description of investment risks, fees and services, review the Virtue Capital Management firm brochure (ADV Part 2A) which is available from your Investment Advisor Representative or by contacting Virtue Capital Management. Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional. The information presented does not does not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to project the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.