When planning for retirement, it is worth knowing that annuities can be versatile financial tools that can provide growth and a steady or predetermined income down the line. These are contracts you create with an insurance company that are designed to grow your funds and pay you back, either immediately or on an agreed upon date.
Among these, a multi-year guaranteed annuity (MYGA) stands out for its specific features. This article explores how it compares with other financial products.
Understanding Annuities
An annuity is a financial contract between you and an insurance company. You pay either in a single transaction or over a period of time, and the insurance company agrees to pay you back. The payback, as with the purchase, can be either a single transaction or a series of installments.
This will depend on the type of annuity you choose. Whether you are seeking instant cash flow or aiming for growth tied to market performance, there is an annuity that complements your financial goals.
- Immediate annuities start paying out right after you pay your premium, providing a quick source of income.
- Deferred annuities, on the other hand, start paying out at a future date, allowing your money to grow over time.
- With fixed annuities, you’re locking in a steady rate that promises steady growth.
- Variable annuities hinge on how the market performs — think stocks or bonds. That means you could see faster growth, but remember you also face higher risks.
Spotlight on MYGAs
A MYGA is a type of fixed annuity. It provides a fixed growth rate on your money for a set number of years. When you choose a MYGA, you make an initial lump sum payment. In return, the insurance company agrees to a fixed rate of growth for a specified term. This term can vary, but it usually ranges from three to ten years.
One of the main features of MYGA is its tax-deferred growth. You won’t have to pay taxes on the growth of your money until you start withdrawing. So, if you expect to be moving into a lower tax bracket after your working days are over, a MYGA could prove beneficial.
The key advantage of a MYGA is its solid consistency, giving you a fixed rate that is not affected by the market’s ups and downs. When market conditions are uncertain, having a part of your retirement funds in a product with a steady growth rate can provide peace of mind.
Growing your money this way means you can plan more efficiently, saving you some cash when it’s time to tap into that retirement fund. A MYGA locks in your growth rate, allowing you to dodge the guesswork and nail down those retirement plans.
MYGAs and Traditional Fixed Annuities
MYGAs and traditional fixed annuities are similar but have key differences. Both MYGAs and traditional fixed annuities offer a steady growth rate, delivering fixed earnings as they are not affected by the ups and downs of the market.
However, a MYGA offers a stable rate for a set term. Traditional fixed annuities may not always have the same rate for the entire term.
This means with a MYGA, you know the exact rate at which your money will grow during the term, offering more predictability. This makes a MYGA suitable if you prefer knowing exactly how much your funds will grow.
MYGAs and Variable Annuities
MYGAs and variable annuities offer different approaches to growing your retirement funds. With a MYGA, your funds are locked in a fixed rate of growth; this low maintenance and fixed status allows you to relax confidently.
In contrast, variable annuities tie your returns to the performance of chosen options, such as stocks or bonds. If market performance is strong, your returns could surpass those of a MYGA. However, in a downturn, your funds may be disappointing.
If you’re comfortable with taking some risk for the chance of faster accumulation, variable annuities could align with your retirement goals. However, if you prioritize stability, a MYGA is more suitable.
MYGAs and Deferred Annuities
Comparing MYGAs to deferred annuities is about timing and growth strategies. A MYGA offers tax-deferred growth until you withdraw the funds. Deferred annuities, on the other hand, focus on accumulating your funds over time, with payouts starting at a later date.
If you’re planning for income much later in retirement, deferred annuities might be appealing. However, if you prefer a stable growth rate and more immediate access to your funds after the term ends, a MYGA could be a better fit. It’s about aligning the product with when you need your funds and how you want them to grow.
Exploring Annuity Options With Pillar Life Insurance
Pillar Insurance understands that you know your retirement goals better than anyone. If you prefer the stability and assuredness of MYGAs, you can easily access Pillar Life Insurance’s online portal.
We will gladly help you tailor a retirement plan that meets your financial goals. Go online with Pillar Insurance today to get started on your future!