For some seniors, a multi-year guaranteed annuity could be the key to unlocking financial stability.-Brian Swerdlow.

By Brian Swerdlow

In a world where economic uncertainty reigns, many people are looking for safety and stability.

For this reason, annuities, especially multi-year guaranteed annuities, have become increasingly popular.

What is a MYGA?

A type of fixed deferred annuity, MYGAs were created to protect against market volatility, provide tax-advantaged growth, and form an additional guaranteed income stream in retirement. These products give you a locked-in, guaranteed rate of return, typically for a period of three to nine years. When you purchase a MYGA, you can choose a single premium amount that best aligns with your specific needs and money goals.

Each MYGA company has its minimum and maximum premium amounts. The company agrees to pay you a fixed interest rate on the premium you’ve paid for the contractually specified period. Interest rates are credited regularly. At the end of your term, you have a choice to either renew the annuity and update the rate, leave your money at the fixed rate, select a settlement option, or withdraw the money.

MYGAs help buffer your wealth against market fluctuations by offering guarantees, fixed returns, and little risk. If you find uncertainty unsettling, a MYGA might be a viable solution for reducing that anxiety.

Advantages and disadvantages of MYGAs

As I mentioned, in an era of sustained economic turmoil, MYGAs may be a reliable antidote to the chaos.

These instruments offer some distinct benefits, such as:

Tax-deferred growth: MYGAs provide tax-deferred growth potential. This benefit means your money will grow unhindered by tax obligations until you begin withdrawals. This tax efficiency amplifies the power of compound interest so that every dollar saved is working harder, maximizing your retirement savings.

Less risk exposure:

Unlike other some other kinds of annuities, MYGA rates are guaranteed. Money in a MYGA is shielded from market fluctuations, and your balance remains stable during economic upheaval.

Flexibility: Most MYGAs allow you to withdraw a portion of your funds without fees and penalties.

This feature means you have a measure of liquidity. If you have an emergency, you’ll be able to access at least some of the money to help you deal with it.

Even though MYGAs have many proven advantages, there are still a few possible drawbacks you should consider before adding one to your portfolio.

MYGAs don’t address inflation: Inflation riders are not built into MYGAs. The lack of an inflation rider ultimately means that if inflation increases, the purchasing power of your payouts is likely to diminish. Without adjustments for inflation, your cash might lose value in real terms.

MYGAs have fees. MYGA fees, while low compared to other products, may still be higher than alternative options such as certificates of deposit (CDs). Increased fees can impact your overall returns.

MYGAs are not insured by the FDIC. Unlike CDs, FDIC insurance does not apply to MYGAs. In the unlikely, but possible event your MYGA issuer becomes insolvent, you won’t have the additional security FDIC insurance provides for CDs.

Five steps to take before buying a MYGA

Before committing to a multi-year guaranteed annuity, you should take time to equip yourself with basic knowledge and develop a sound, safe money strategy.

Always read before you sign.

Scrutinize your proposed annuity contract and write down questions you may have. Be sure your advisor has thoroughly explained vital provisions of the MYGA contract, including interest rates and withdrawal conditions. Don’t assume anything.

Understand the tax consequences. Your annuity salesperson, financial planner, or tax consultant must give you the bottom line on the potential tax implications of your annuity.

Try before you buy: Take advantage of the “free look” period to determine if your chosen annuity is suitable for your purposes.

Understand all the fees.

Be sure you know the surrender charges and other expenses associated with your annuity and the impact they could have on investment performance. Find a trustworthy annuity expert to guide you. Annuities are more complicated than some safe money products. For this reason, most people will benefit from having a retirement income specialist help them discover what they must know to make the wisest decisions. It may also help to get a second opinion before you sign on the dotted line. One service I perform for my clients and prospective clients is a no-cost review of their financial plans and products.

Summing it up:

People desiring more safety and predictability in their portfolios often choose to add multi-year guaranteed annuities, or MYGAs, to their retirement matrix. MYGAs give retirees and those about to retire tax-advantaged growth, less exposure to market risk, and a measure of flexibility.

However, a MYGA is not right for everyone. These products come with some potential downsides, such as a lack of inflation protection, additional fees, and other pitfalls. Those considering MYGAs should always do adequate research and consult with a retirement income specialist before purchasing.

 

I am always happy to help pre-retirees and retirees evaluate and assess their current portfolios and adapt them to evolving financial circumstances. If you’d like a second set of eyes to help you gain long-term financial security and peace of mind in retirement, contact me today.

https://www.anchorfinadv.com/index.html#contact or call (847) 604-0090

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Anchor Financial Advisors Website: anchorfinadv.com