Seriously Thinking "Fixed" Annuity to Replace Some CDs

[ShokWaveRider]

I know "An*#$ties" are bad words in some circles, and many ARE. But I am looking for CD replacements for Non-qualified Moneys in December when my 3% PenFed CDS run out.

Enter the "Fixed" annuity. Currently Returning 3.7% for 5 Years (A+ Rated Co. Including any fees which are low), No penalty 10% Withdrawals per Annum, deferred interest, and the Big one; Guaranteed up to $250k per contract in the state of Florida. An added benefit they are protected from unscrupulous grabbing Lawyers hands (In Florida).

Thoughts. Thinking of putting about $500k in 2 contracts when the time comes.

 

[pb4uski]

You could probably do worse. While I think the credit risk of a A+ rated company is low, particularly after considering guaranty funds, it is a smidgeon higher than FDIC insured CDs. One disadvantage is that unless in a tax-deferred account that the income becomes a slug of taxable income in the year it is withdrawn, but I guess that you could manage that by taking the interest out each year via the 10% free withdrawal provision. Downside is that if you need that money that surrender fees will likely be much higher than CD early withdrawal penalties.

5 year brokered CDs are currently paying ~3.2%. High quality corporate bonds pay the same 3.7% (like BSCN, which has a yield to worst of 3.71%) so I would probably stick with those and accept the smidgen higher credit risk as a tradeoff for better liquidity.

 

[MrLoco]

I would be careful. This sounds like an indexed annuity with the returns pegged to an index like the S&P 500 for example. Where you can never "lose" money if the market drops, but your upside is capped.

Also, I am sure the "3.7% return" includes an annual return of principal. The fees associated with these insurance products, which is what they are...insurance products...not investments....are well hidden and add up fast.
The up front commissions, surrender charges, etc. make them too expensive and restrictive in my book. Good luck whatever you decide.

 

[FREE866]

BEFORE you purchase any annuity ask the annuity company what the annual fees are including sub account fees, M&E expenses, any riders. Also ask if there are surrender penalties

 

[ShokWaveRider]

It is NOT Indexed. Research Fixed Annuities and you will see. Also fees are low for these and are included, returns are actual.

Remember these are NOT your traditional Annuities. These are more commonly sold by Fiduciaries. Never buy from a regular insurance agent. Again, do the research, like anything else.

 

[capjak]

I am assuming you are referring to Multi Year Guaranteed Annuity MYGA which works the same as a CD. Where you put money in and at the end of the term 3yr/4yr etc... it pays the interest. The difference is that the interest is tax deferred until the MYGA matures.

Most MYGAs allow interest to be distributed of course you will pay tax just like a CD, not all also allow premium to be distributed so would confirm that.

I think MYGAs from an A+ company are a good alternative for fixed income and I have also been investigating them, but I would do a ladder just like a CD (i.e. 3yr/4yr/5yr) incase interest rates increase significantly.

 

[ShokWaveRider]

I am assuming you are referring to Multi Year Guaranteed Annuity MYGA which works the same as a CD. Where you put money in and at the end of the term 3yr/4yr etc... it pays the interest. The difference is that the interest is tax deferred until the MYGA matures.

Most MYGAs allow interest to be distributed of course you will pay tax just like a CD, not all also allow premium to be distributed so would confirm that.

I think MYGAs from an A+ company are a good alternative for fixed income and I have also been investigating them, but I would do a ladder just like a CD (i.e. 3yr/4yr/5yr) incase interest rates increase significantly.

Yes Exactly. More flexible than a CD really because of the 10% Per Year withdrawal clause, and in Florida that $250k insolvency insurance is nice.

 

[capjak]

Enter the "Fixed" annuity. Currently Returning 3.7% for 5 Years (A+ Rated Co.

I would be interested in where you found 3.7% from an A+ rated company as I have not seen one that high for A+ rated.

Fixed Rate Annuities (MYGAs) | Stan The Annuity Man®

 

[ShokWaveRider]

I would be interested in where you found 3.7% from an A+ rated company as I have not seen one that high for A+ rated.

Fixed Rate Annuities (MYGAs) | Stan The Annuity Man®

I called an independent Fiduciary I know locally. I do not need them till December so I did not check the company out exactly.

 

[Huston55]

I’d ask yourself why (if?) it’s worth the additional ~0.5% to you to give up the liquidity. Does an extra $2.5k/yr really make that much difference?

 

[capjak]

I called an independent Fiduciary I know locally. I do not need them till December so I did not check the company out exactly.

Thanks I have seen AM Best rated B++ rated at 3.7 but not A+ is 3.3 per stan the annuity man site (very entertaining videos) and others. Maybe he is quoting another rating system other than AM Best.

Here are the sites I look at:
1. https://www.immediateannuities.com/deferred-annuities/
2. Fixed Rate Annuities (MYGAs) | Stan The Annuity Man®
3.https://www.annuityadvantage.com/annuity-rates-quotes/multi-year-guarantee-annuities/

 

[capjak]

I’d ask yourself why (if) it’s worth the additional ~0.5% to you to give up the liquidity. Does an extra $2.5k/yr really make that much difference?

I would think so, but I am not sure the spread is really that much for what I have been seeing, but if it is than yes that is significant, plus some control of taxes,

at 0.5% and rolled over to a new MYGA after 5 years...

$12,600 compounded 5 years
$25,000 10 years
$38,000 15 years
$52,000 20 years

 

[ShokWaveRider]

Plus protection from Litigation in Florida. B++ is OK too.

 

[capjak]

I’d ask yourself why (if?) it’s worth the additional ~0.5% to you to give up the liquidity.

For Liquidity the $500,000 with several of the companies that supply MYGAs allow 10% a year withdrawal free if >59.5 YO otherwise may have 10% IRS penalty. So after the first year for a 59.5 YO, $50,000 dollars per year.

 

[Huston55]

I guess I’m still not sold; at least for our situation.

I would think so, but I am not sure the spread is really that much for what I have been seeing, but if it is than yes that is significant, plus some control of taxes,

If it’s a bit more return each year you seek, adjust your AA & retain control over your assets.

Plus protection from Litigation in Florida. B++ is OK too.

OK, I see the value in this. But, are you really worried about litigation? Is that what’s motivating you?

For Liquidity the $500,000 with several of the companies that supply MYGAs allow 10% a year withdrawal free if >59.5 YO otherwise may have 10% IRS penalty. So after the first year for a 59.5 YO, $50,000 dollars per year.

Yep, access to 10% annually is good but, not as good as access to 100%. You do give up substantial liquidity; no way around that.

I went to the ‘StanTheAnnuityMan’ link (thanks capjak), and he lists four reasons for buying annuities.

P (Principal Protection): other than litigation protection, I don’t see any added PP value over CDs.

I (Income for Life): MYGAs are for a fixed time so, you don’t get this.

L (Legacy): You’re not buying that type of annuity so, no advantage over CDs & not as good as life insurance.

L (Long Term Care): You’re not buying that type of annuity so, no advantage over CDs; and Stan recommends LTCi if you can qualify.

So, in the end, it seems you’re just chasing a bit of extra return (aren’t we all), and considering giving up substantial control (liquidity) to get it. I just can’t get there but, that’s just me for our situation.

 

[ShokWaveRider]

These can be concerted to lifetime income annuities with no loss of principle when you Kark it (Except what you take out over the interest earnt), and Tax Deferral till DW gets on Medicare (to qualify for max ACA subsidy).

 

[Chuckanut]

Plus protection from Litigation in Florida. B++ is OK too.

This seems to be very important to you for whatever reason. And, if you believe there is a good chance that some litigation will be used to take your money from you, well... I can't argue with you. You know your situation far better than any of us do.

 

[ShokWaveRider]

This seems to be very important to you for whatever reason. And, if you believe there is a good chance that some litigation will be used to take your money from you, well... I can't argue with you. You know your situation far better than any of us do.

Not really, we have an umbrella policy. It is just an added benefit in Florida.

Tax deferral is probably more important right now.

 

[jazz4cash]

I've been watching these also and consider them to be a viable component for fixed allocation. Specifically, the MYGA variety, but also the Secondary Market (fixed) Annuity options look reasonable. I was not brave enough to bring up the subject on this forum because the decent products get lumped in with the predatory stuff.

Now that CD rates are rising, my focus is shifting toward 2-3 year FDIC products.

 

[capjak]

I've been watching these also and consider them to be a viable component for fixed allocation. Specifically, the MYGA variety, but also the Secondary Market (fixed) Annuity options look reasonable. I was not brave enough to bring up the subject on this forum because the decent products get lumped in with the predatory stuff.

Now that CD rates are rising, my focus is shifting toward 2-3 year FDIC products.

As CD rates rise so do MYGAs.

OFF Topic: The secondary market Fixed Annuities provide in some cases higher/attractive returns but I could never go there due to the legal risks see this:
"Secondary Market Annuity" Investors Screwed out of $152,833.37 and Incur Legal Bills to Fight NJ Vendor - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary, Now in 13th Year!

 

[jazz4cash]

As CD rates rise so do MYGAs.

OFF Topic: The secondary market Fixed Annuities provide in some cases higher/attractive returns but I could never go there due to the legal risks see this:
"Secondary Market Annuity" Investors Screwed out of $152,833.37 and Incur Legal Bills to Fight NJ Vendor - Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary, Now in 13th Year!

I agree that the MYGA and CD rates should move together, but I guess what I'm saying is that the MYGA option is more attractive when FDIC CD rates are pitiful as they have been the last few years. Now that they are not-quite-so-pitiful, I am less inclined to reach for the yield of the MYGA products.

That link to structured settlement blog is scary as hell. Although it looks like a hazard specific to SMAs based on structured settlement derivatives which is not something I would consider, I think it would be easier to just stay away.

 

[capjak]

That link to structured settlement blog is scary as hell. Although it looks like a hazard specific to SMAs based on structured settlement derivatives which is not something I would consider, I think it would be easier to just stay away.

Has nothing to do with MYGAs but yes SMAs can be scary if not handled by professionals.

 

[capjak]

L (Long Term Care): You’re not buying that type of annuity so, no advantage over CDs; and Stan recommends LTCi if you can qualify.

Talked to Stan before and he sent me to a specialist in LTC and he recommended hybrid for couples that want a lifetime benefit vs short duration (3-6 years) and for shorter durations non-lifetime than LTCi maybe more attractive.

 

[pb4uski]

I agree that the MYGA and CD rates should move together, but I guess what I'm saying is that the MYGA option is more attractive when FDIC CD rates are pitiful as they have been the last few years. ...

FWIW, I used to work in the industry and for a period of time was in charge of financial management for our annuity line of business so I am very familiar with the product.

From what I have seen, MYGA and CD rates for similar terms are pretty close... especially for A+ carriers.... IMO if they are similar, then I would prefer CDs because of slightly lower credit risk via FDIC insurance and significantly better liquidity (EWPs are typically less than surrender charges and CD liquidity can be improved by just buying multiple CDs rather than one... I split my PenFed CDs in 20% increments in case I ever needed the money).

 

[jazz4cash]

FWIW, I used to work in the industry and for a period of time was in charge of financial management for our annuity line of business so I am very familiar with the product.

From what I have seen, MYGA and CD rates for similar terms are pretty close... especially for A+ carriers.... IMO if they are similar, then I would prefer CDs because of slightly lower credit risk via FDIC insurance and significantly better liquidity (EWPs are typically less than surrender charges and CD liquidity can be improved by just buying multiple CDs rather than one... I split my PenFed CDs in 20% increments in case I ever needed the money).

I pretty much agree with all of the above. I am leery of ratings and I am not familiar with many of the insurers offering slightly higher MYGA rates (even the A rated ones), but I do know FDIC so it feels OK to do business with a bank I never heard of as long as they have this designation.

I split my PenFed CDs into 20% increments also...........and then I realized they allow partial withdrawals so I don't think it helped me except it did feel like a good thing to do. Live and Learn. That's one more thing on my checklist when reviewing disclosure forms. Older PenFed IRA CDs waive the early withdrawal penalty but the newer ones no longer include that exception in the disclosure.