How do you use MYGAs? Any tips?

[disneysteve]

I've read a few previous threads about MYGAs and think I have a pretty good understanding of them. I'm curious how you all employ them in your portfolios. Do you use them instead of CDs? Do you ladder them, and if so, what's your approach?


Other than the company rating and the interest rate, what other factors do you look at? I know they have different early withdrawal penalties (which I'm not overly concerned with), different policies on partial withdrawals during the term, and some other differences.


We currently hold 2 CDs and a third one just closed 2 weeks ago and I didn't renew it so the cash is sitting in our Ally account. Looking at the MYGAs, even the 2-yr ones are paying way more than CDs. This would definitely be for money we have no near-term need for, and if we build a ladder and get to having one come due every year starting in a couple of years, that would be great.


Anything else I should be watching out for?

 

[disneysteve]

What happens at the end of the term? Is it similar to a CD where you get a notice that it's maturing and asking what you want to do?

 

[jazz4cash]

I am a big fan. I even started a thread so you’ve probably read most of what i have to say. I haven’t had a contract mature so i cant say for sure but i really like the fact that i can just leave funds in the account earning 1% until i settle on my next move.

I have a fixed income ladder that includes CDs, bonds, and 1 MYGA. I plan on adding another 5yr MYGA very soon

 

[Bruno]

I am also a big fan of MYGA but these Annuitys companies are not your friend IMO. You need to read the contract and understand it. I suppose every company is different. I decided to retire and had a Symetra and requested a Annuitation request. You tell them when you want it and for how long and how much taxes to withhold. The first one i sent in was to start in Aug for 5 years. I then sent in another one to start 4 months later in Jan. The difference was $200 more per month for 60 months. This MYGA was funded with cash and when you annuitize it the interest you have made is divided into 60 equal payments. That was about the last time i ever heard from them. The bank gets my check on the first of each month and its been good. The second MYGA came up for renewal and i never heard anything from them it was with Sentinal. I got to reading the contract and I only had a 30 day window to decide what to do. The surender charge was down to 5% and the only time its waived is during that 30 day window. I visited with them about annuization but they were only going to pay me 1% interest for the next 60 months. I didnt have much time so i just renewed it at 3.92% for the next 5 years. It has a FREE 10% withdrawl each year. My plan was to take that free withdrawl each year to reduce the amount of taxes i would have to pay at the end of this contract but has not worked out so far. I have another 2 1/2 years to figure out what to do then. Maybe do a 1035 exchange to something else.

 

[Koolau]

Pretty much just use them as CDs. I don't ladder because I've purchased them over the years on a hit-and-miss basis. YMMV

 

[pb4uski]

I haven't used them but their rates are a little better than CDs. I could buy them through my IRA brokerage account at Schwab but I'm not sure that I want to tie up a $100k+ at 2.4% for 3 years when interest rates will be rising, especially since surrender penalties are so much more onerous than CDs.

 

[Dtail]

I have purchased 3 MYGA's for my mom's portfolio. Use them effectively as a substitute for CD's. I am laddering 3 year MYGA's, which is down from my 5 year CD ladder, as it appears rates could head up.
When the MYGA matures, the balance moves into their main money market account. So far, only willing to invest in the A++ rated ones.

Edit - fine with the 3 year MYGA in a rising interest environment, as my mom has other investments, plus still some higher yielding CD's.

 

[jazz4cash]

One negative feature of MYGAs that i have not seen mentioned is the Market Value Adjustment (MVA) that some contracts assess in addition to the onerous surrender charge for early withdrawal. The MVA will increase the early withdrawal penalty if rates have risen since you bought in. Fortunately most contracts have 10% per year penalty free withdrawals.

 

[Jerry1]

I have one at 3.5% for 7 years. It’s about 1.5 years now. My plan is to hold until maturity but I’ll adjust if rates go high enough. As jazz4cash mentioned, I can take out 10% a year without penalty. I can also take out any income annually (that year’s income only). My intention though is to let the income compound.

 

[pb4uski]

One negative feature of MYGAs that i have not seen mentioned is the Market Value Adjustment (MVA) that some contracts assess in addition to the onerous surrender charge for early withdrawal. The MVA will increase the early withdrawal penalty if rates have risen since you bought in. Fortunately most contracts have 10% per year penalty free withdrawals.

Yes, the MVA feature give a MYGA investment the same interest rate risk as a similar maturity bond, with the surrender charge in addition. Very bad I this environment. But like a bond, no problem if you hold to maturity.

 

[Luvtoride]

We hold one MYGA which we purchased 2 years ago when we put together our bucket plan with our FA. We funded it to provide our additional cash we would need when I retire next year (3 year MYGA) for the first 3 years of retirement. No market risk and no need to touch our equity investments for at least 6 years from when we bought it.

Very comfortable using this to “park” our early years of retirement cash needs at a rate (3%) that far exceeded any other “ safe money “rate at the time.

 

[PatrickA5]

Bought a couple of Met Life 3 year, 2% MYGA's through my Fidelity IRA a couple of years ago. One year left and then I'll figure out if I want to do another one or just roll the money back to mutual funds in my IRA. This particular MYGA had no Market Value Adjustment. I've been pleased with the transaction and the fact that it shows up with all of my other IRA's on my Fidelity screen.

 

[disneysteve]

Thanks for the replies so far. I'm really not concerned with the early surrender fee or the MVA as I wouldn't put any money into these that we would possibly need during the designated term. If something so catastrophic happened that we had to cash out an MYGA, then it just wouldn't matter at that point as we'd be all but broke.


It sounds like they are a pretty reasonable alternative to CDs but with higher interest rates. Time to start doing the deeper dive research and look into getting one to test the waters.

 

[Luvtoride]

Steve,
I understand your comments. Hope it never comes to that.

Check out Annuity Advantage for current terms and rates with no obligation to buy anything thru them. They publish updated rates of many companies every week.
Good luck.

 

[donethat]

I'd certainly consider Ibonds as an alternative for the first $10K or $20K (if you're married).

 

[pb4uski]

^^^ Absolutely, better yields, more flexibility, lower surender charges.