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What Is A Multi-Year Guaranteed Annuity?


Annuities are useful financial planning products for retirement because they offer many of the same benefits of a pension plan. A benefit of an annuity is that it can be tailored to the purchaser’s specific needs. The annuity contract can be designed to make regular payments for a predetermined number of years or the remainder of the person’s life.

Because fewer employers provide pension plans that offer a consistent, steady stream of income during retirement, more and more individuals are turning to annuities to fill that need. Individuals use annuities to provide a consistent, reliable source of income for themselves during retirement. Any amount remaining in the annuity after their death can be used to benefit their loved ones.

There are several types of annuities to choose from as you develop a financial plan. A Multi-Year Guaranteed Annuity (MYGA) is a popular choice for a variety of reasons.

Benefits of a Multi-Year Guaranteed Annuity

A Multi-Year Guaranteed Annuity (MYGA) shares some similarities with a Certificate of Deposit (CD). As with a CD, an MYGA offers guaranteed rates of return over specific periods. Also like a CD, the longer you invest in the MYGA, the higher your rate of return.

For example, when you purchase an MYGA from an insurance company, the insurance company deposits and holds your funds for a specified period, such as three to ten years. During that period, the insurance company pays a fixed rate of interest on the amount in your MYGA.

An MYGA also shares some similarities to a 401k account. You are not required to pay income taxes on the earnings in your MYGA until disbursement of the earnings. However, early withdrawals are subject to a penalty according to the annuity contract. Also, early withdrawals before age 59 ½ are subject to an IRS penalty.

What Happens at the End of the MYGA Term?

At the end of the MYGA term, you have several options. The option you choose depends on your situation and your goals, as discussed with your financial planner. You may cash out the MYGA and receive all funds immediately. You can also convert those funds to another MYGA to continue earning interest at a fixed rate for another specified period. This option might be beneficial if you do not yet need an additional stream of income, but you want to preserve that option for another three to ten years.

You can also convert the MYGA funds to another investment option or begin receiving annuitized payments based on a specific term. If you choose to begin receiving annuitized payments, the funds in your MYGA continue to earn interest, but the interest rate earned on the remaining balance may be lower than the original rate of return for the annuity.

Be Cautious When Purchasing a Multi-Year Guaranteed Annuity

Even though MYGAs share some of the characteristics of a CD, MYGAs are not insured by the FDIC. Therefore, your investment is at some risk. It is important that you review the rating and reputation of the insurance company or financial institution offering the MYGA to ensure you are investing your money with a solid, reputable, and reliable company. A financial planner can help you research companies to choose one of the top annuity companies for your investment.

The Castle Wealth Group Offers Holistic Financial Planning Services

Financial planning is one of the most important steps you can take to ensure you and your loved ones have the income and resources you need now and in the future. The financial professionals of Castle Wealth Group offer classes and individual counseling related to all financial matters, including tax planning, retirement planning, estate planning, Social Security, Medicare, and long-term care planning.

If you have questions, call (844) 885-4200 to speak with a knowledgeable representative.

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