When planning for your economic future, choosing the right financial vehicles for that money is just as important as how much you save. Most people envision some mix of stocks and bonds or even real estate as their primary options for increasing their wealth.
However, fixed annuities are a useful option that are often overlooked. Some people do not realize that annuities are available for more than just receiving pensions or lottery winnings, and others simply do not know what these products can do.
Here is an overview of how fixed annuities, and especially MYGA products, or multi-year guaranteed annuities, fit into one’s overall financial picture.
How MYGAs Function
A multi-year guaranteed annuity is a type of fixed annuity. An individual can choose to contribute a lump sum of money to a MYGA to be held for a certain number of years, as specified in the contract.
For these years, the money will accumulate according to the rate that is set as part of MYGA’s terms. Contrary to other types of financial products, a MYGA’s rate will not change while it is holding the money which is the “guaranteed” portion of the name.
MYGAs are different from other types of fixed annuities, because they do not distribute payments. Other annuities will provide regular payments for the duration of the annuity’s term, which could be just a few years or as long as the rest of someone’s life; however, MYGAs focus instead on accumulation.
The initial lump sum remains in the MYGA, where it accumulates until the term is concluded, at which point the money goes back to its owner. From there, they may opt to leave it in for a further term, put it into another MYGA, or use it for whatever their financial needs dictate.
Why MYGA Products Help Financial Balance
At first glance, a MYGA may sound very similar to another financial product: a certificate of deposit, or CD. However, incorporating MYGAs into one’s financial picture can offer advantages that CDs and other vehicles cannot.
One of the primary ways that MYGAs outcompete similar options such as certificates of deposit is in the way they are taxed. MYGAs are tax deferred, which means that the money within the annuity will grow without taxation until the end of the term.
Compare this to a CD, which is taxed on any accumulation yearly. Because MYGAs are able to grow without any tax payments until the term is complete, you get to keep more of your money to leverage for other important tasks.
Another reason that MYGAs are a worthwhile consideration for any portfolio is their protection from market risks. Annuities are managed by life insurance companies instead of banks, so industry-wide changes that affect banking rates will not have the same effect on annuities.
Similarly, MYGAs offer a rate that is enshrined within the terms of the contract; it will not fluctuate based on market conditions. While stocks may lose value when the market goes down, a MYGA will continue to accumulate because it does not track a market index.
The predictability and security of a MYGA offer advantages that are worth considering for anyone who is creating a balanced financial blend for their future.
The Risks of MYGAs
MYGAs are a useful tool that can be leveraged to shelter money against market risk while achieving a predictable end balance, but they do have some caveats that are important to consider.
Because a MYGA is a type of annuity, this means that once the money is committed to its purpose, it should be left there. Contrary to CDs, which may enforce stringent penalties for early withdrawal, some MYGAs can include a provision to withdraw up to 10% of the account’s balance each year without fees.
However, MYGAs still do best when the money is left untouched for the term. The security away from market conditions is also worth noting.
While this element provides a level of security, it also means that a MYGA product will not accumulate faster when the market is performing well. That job should be left to other parts of your complete financial picture.
Incorporate MYGAs into Your Financial Picture
When determining how to leverage your assets to increase your wealth and secure your financial future against market uncertainty, multi-year guaranteed annuities are a useful tool that may go overlooked.
Pillar Life Insurance understands that you are the expert of your own financial goals, which is why annuities offered by Pillar can be found by using an online self-service tool without the inconvenience of going through a middleman.
Fill out Pillar’s online form to explore the MYGA options that are available in your area and choose one that supports your short- and long-term financial goals.