Multi-year guaranteed annuities (MYGAs) present a low-risk option for those planning retirement finances. They provide a fixed growth rate for a set period, ideal for those who want steady returns as they age.
But one step pre-retirees need to fully understand is how withdrawing from a MYGA works. Taking money out early from a MYGA could lead to penalties, which may affect your retirement options.
This article will give you a clear understanding of withdrawing from a MYGA. It will cover the effects of early withdrawals, surrender charges, and how to handle these aspects wisely.
Understanding MYGA Withdrawals
Under certain circumstances, early withdrawal from a MYGA can incur penalties. If you withdraw more than the penalty-free threshold or end your contract early, you will face a surrender charge which is represented as a percentage of your account value.
Also, your account may see a market value adjustment (MVA), either positive or negative, depending on the interest rate environment. MYGAs offer some flexibility with penalty-free withdrawals after a certain period, often five years.
However, any interest earned during the accumulation period is taxable when you withdraw it.
It’s important to note that surrender charges and MVAs can significantly impact your financial outcomes, especially if you withdraw a large portion of your funds. Understanding these terms before getting a MYGA is necessary for effective retirement planning.
MYGA Surrender Charges
Surrender charge schedules in MYGAs vary, but, as a general rule, they decrease over time. These charges apply to withdrawals exceeding the penalty-free limit and are a percentage of the accumulated value.
Each period within a MYGA has its own surrender charge schedule. If your MYGA renews for a new period, the surrender charge schedule may reset. These surrender charges are structured on a sliding scale, with penalties typically ranging between 1% and 10%.
The exact structure of these penalties varies from one insurance company to another, impacting the overall value of the MYGA. For instance, some companies may offer lower surrender charges but with longer periods.
Make certain to understand these charges, as they can significantly reduce the value of your MYGA if withdrawals are made early or in larger amounts than the penalty-free limit.
Planning Around MYGA Withdrawal Terms
To manage your finances effectively, consider the MYGA’s withdrawal penalties. Prepare in advance by making sufficient liquid funds available during the surrender charge period to avoid unnecessary withdrawals from your MYGA. This planning is especially important in emergencies or unforeseen financial needs.
Another factor to consider is how a MYGA complements other retirement income sources. While MYGAs can be a stable source of income, they should be part of a diversified retirement plan that includes other income sources such as Social Security benefits, IRAs, or other retirement annuities.
Mindfulness of a MYGA’s withdrawal restrictions is key. By understanding and planning for these terms, you can use your MYGA to enhance your retirement income while avoiding financial pitfalls related to early withdrawals.
Comparing MYGA With Other Retirement Options
When looking at MYGAs versus other retirement choices, including individual retirement accounts (IRAs), there are a few important differences to note. MYGAs come with a set rate of growth for a certain time. This means your money grows in a way you can count on, which is appealing, especially if retirement is just around the corner.
IRAs and other retirement annuities, in contrast, often give you more choices. You can keep adding money to them, and they let you choose from different kinds of financial options. This variety could mean more growth for your money, but it is also subject to the ups and downs of the market.
If what you need most is steady growth that you can rely on, a MYGA is an excellent option. But if you prefer having immediate access to your funds or you enjoy actively managing your options, IRAs and other annuities may be a better fit for you.
How Pillar Life Insurance Can Help
Retirement planning can be complex, but Pillar Life Insurance will help simplify your journey. With a focus on providing clear, straightforward options, Pillar Life is an ideal partner for selecting MYGAs with favorable terms.
At Pillar Life Insurance, we understand the nuances of MYGAs and how they fit into your overall retirement plan. Our self-service platform allows you to explore various MYGA options, helping you find a product that aligns with your financial goals and retirement strategy.
Whether you’re just starting to plan for retirement or looking to optimize your existing financial strategy, Pillar Life Insurance is here to guide you. Explore our offerings, understand the benefits of MYGAs, and make an informed decision about your retirement.
For a plan tailored to your needs, contact Pillar Life Insurance today and take the first step towards a secure financial future.