Annuities are an often overlooked option for people who are considering how to bolster their financial portfolio and prepare for their later years. However, even if you’re not quite ready to retire, a MYGA can help you to grow your money in a safe and predictable way.
There is no single MYGA with consistent terms and details, so understanding what elements make up the best MYGA for you will be a combination of the MYGA options in conjunction with your income goals and financial situation.
Here’s what you need to know about how to choose the best MYGA terms for your situation, as well as some of the risks that can be associated with an annuity.
How a MYGA Works
MYGA stands for a multi-year guaranteed annuity, and it is the insurance industry equivalent of banking vehicles such as a certificate of deposit. However, unlike a CD, a MYGA is tax-advantaged, which means that you will not be required to pay tax on the growth each year. Because of this feature, many people choose MYGAs over CDs so their money can grow more effectively.
MYGAs are not the same as fixed annuities that pay out predictably over time. Instead, a multi-year guaranteed annuity allows your balance to grow. Once the term of the MYGA is complete, you have the options to roll the money into another MYGA, receive it as income, or place it into a different type of annuity to begin receiving payments.
The Terms You Should Pay Attention To
MYGAs, as with any other type of annuity, come with terms that will determine how the product operates and what you can expect. You have the power to select the best combination of elements for your situation; therefore be sure to pay close attention to:
The guarantee period – This refers to how long the MYGA lasts. In other words, the length of time your money will be committed to the annuity. Most MYGAs tend to range somewhere between three and seven years, but you may be able to find products as short as two years or as long as 15 years. During this term in which your money stays in the MYGA, you must plan not to access it.- The rate – This describes how much your MYGA balance will grow. For example, if your MYGA offers a 6% rate, your lump sum will grow by 6% on the schedule described in the contract (terms may be to capitalize per month, per quarter, annually or something else). The rate is what allows you to know for sure what your MYGA balance will be at the end of the term.
- The withdrawal provisions – You should plan to leave your money untouched in a MYGA so that it can grow. Some plans allow you to withdraw certain amounts of money without a penalty, and if applicable, these details will be described in the withdrawal provisions. Not all MYGAs come with such provisions.
Which MYGA Terms Are Best for You?
In order to understand which MYGA terms best suit your needs, you will need to consider your goals. Do you want your money to grow as much as possible? If so, consider the highest rate you can find among the various term durations being offered.
If you want your money to grow as much as it can, but you know that you will need it by a certain date, be sure to only look at MYGAs with a term shorter than the deadline by which you will need your money. Another option is to choose a MYGA with withdrawal provisions that cover your anticipated need.
The Risks to Know
MYGAs can be a powerful vehicle to grow your money safely, sheltered from the fluctuations of the market. However, as with any financial product, they do have their own set of risks and drawbacks. Be aware that:
Withdrawal is costly – As mentioned previously, if you exceed your withdrawal provisions or choose a MYGA that doesn’t have any, you can expect to pay hefty fees to access your money once it is committed to an annuity.- The issuer is an insurer – MYGAs are administered by insurance companies, not banks. This means that the FDIC does not oversee annuities. You should only secure a MYGA from a reputable insurance company to offset this risk.
Get the Right MYGA for You with Pillar
If you believe that a MYGA, or another type of annuity, is the right choice to add to your financial picture, you can take charge of the next steps with Pillar Life Insurance.
Our self-service online portal allows you to purchase the annuities that suit your needs without requiring you to spend time speaking with an agent about your personal situation. Take our online questionnaire to get started, or contact Pillar Life Insurance with any questions.
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