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MYGA Ladder
Old 08-14-2022, 08:57 AM   #1
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MYGA Ladder

As I am planning on retiring (or at least cutting back..alot) the middle of next year I am trying to get to a lower tax bracket. I have been buying MYGA's over the last year. I have put together a concept on withdrawals:


Building a MYGA ladder so every year I would only have to pay tax on $50,000 - $70,000 interest. This would mean buying individual MYGA's so they don't exceed 250K (State Insurance) per issuer and have them come due on different years. If they happen to come due the same year do a 1035? exchange on one and cash in the other one. Right now I have a bunch of CD's that I have to pay every year on the interest and it puts me in a higher tax bracket. All of these are coming due in the next 4 years. This way I would have 250K to live on with less than 20K in taxes



Any ideas on this strategy?
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Old 08-14-2022, 09:06 AM   #2
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I assume that you have factored in to your thinking on taxes that you will no longer have income from working? If your only income is $70k of interest and you are single you would be in the 12% bracket and your taxes would only be 6.5% of your income.

If taxes really are an issue, have you considered using tax-free municipal bonds rather than MYGAs? As you know, MYGAs are tax-deferred and not tax free so you have to pay the piper sometime and if you don't plan right a combination of MYGA interest becoming taxable because it is withdrawn combined with other tax-deferred account withdrawals and/or RMDs can be a killer... aka the tax torpedo.

There is a separate thread on munis that you might find interesting: Muni Bond (and Muni Bond Fund) Discussion
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Old 08-14-2022, 09:36 AM   #3
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OP, this is my plan too. Self Managing withdrawals. I am selecting 5 years MYGAs, not necessarily laddered. Hoping for 5% return before the end of the year. I am more interested in having 10% annual withdrawals after 2024 till they mature.

I am contemplating a 7 year but somehow have difficulty in getting my arms around that. I cannot seem this think further out than 5 years.

Canvas (Sales outlet for Puritan Life B++) has a 3 year 4.6% MYGA with 10% free withdrawals per year.
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Old 08-14-2022, 10:13 AM   #4
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OP, this is my plan too. Self Managing withdrawals. I am selecting 5 years MYGAs, not necessarily laddered. Hoping for 5% return before the end of the year. I am more interested in having 10% annual withdrawals after 2024 till they mature.

I am contemplating a 7 year but somehow have difficulty in getting my arms around that. I cannot seem this think further out than 5 years.

Canvas (Sales outlet for Puritan Life B++) has a 3 year 4.6% MYGA with 10% free withdrawals per year.
.

I have a hard time with 7 years also, mostly as getting older . I do have individual muni bonds kicking off about 25k per year. I am married. My RMD for retirement won’t be much, most of my savings are after taxes. I have maxed out Canvas already and Gainbridge. Been looking at Blueprint, they have a great selection. Have a great day
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Old 08-14-2022, 10:22 AM   #5
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.

I do have individual muni bonds kicking off about 25k per year.
Interesting, I have not found any AAA Rated, AAA Insured bonds that have a return anywhere near MYGAs. But I honestly would not know where to look for them.
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Old 08-14-2022, 10:39 AM   #6
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Interesting, I have not found any AAA Rated, AAA Insured bonds that have a return anywhere near MYGAs. But I honestly would not know where to look for them.
I have not either recently. Bought those a few years ago about a 3 percent return. I cannot find a single downside to MYGA products as long as you keep track of maturity and stay under the state limits. My motto (most call me a fool) save more to offset conservative returns. This ladder concept should save us thousands in taxes going forward.
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Old 08-14-2022, 10:57 AM   #7
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I have not either recently. Bought those a few years ago about a 3 percent return. I cannot find a single downside to MYGA products as long as you keep track of maturity and stay under the state limits. My motto (most call me a fool) save more to offset conservative returns. This ladder concept should save us thousands in taxes going forward.
Agreed, although I cannot remember the last time I paid any taxes worth noting. We have deferred everything to get Maximum subsidies ever since the inception ACA. We have had it (ACA) since then for both of our early retirement healthcare needs. We still have to be under the radar till 2024 when DW goes on Medicare. We could not have ERd without the ACA.

So, if we have to pay a little more tax after that, we are OK with that. I would rather give it to the IRS than any Healthcare insurance Company. Of course, we will both have Part G supplements so we will both give it to them eventually, as I am now. But at least we are getting Top of the Line Healthcare as a result at what we consider to be a very reasonable cost.
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Old 08-15-2022, 05:12 AM   #8
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I cannot find a single downside to MYGA products as long as you keep track of maturity and stay under the state limits.
For those interested in the state guaranty process, Colorado Bankers Life (based in NC) is currently going through the first step known as rehabilitation. CBL was rated 'A' until 2015 when it dropped to B++. The owner then made some poor investment decisions that didn't work out. CBL was placed in rehab by the NC Insurance Commissioner in June 2019.

5-year 'A' rated CBL MYGAs issued in early 2015 are currently in limbo. Policy holders do not have access to the principal unless they can prove financial hardship. 5-years is when the guaranteed interest rate expires and the annuitant can make changes under normal circumstances. It is not a maturity date.

Quote:
Stan the Annuity Man

A person bought a five-year multi-year guarantee annuity from me, a product known as an annuity version of a CD. It's a five-year guarantee, but the policy had a maturity date of 50 years from now. So the guy calls me up, and he goes, "Wait a minute. I bought a five-year policy with the guarantee. So why does it say 50 years from now there's a maturity date?” That means if it gets to that date and you have not contacted them, there will be choices and the possibility of you having to annuitize it then.
Here is a thread on another forum dealing with CBL. Several have a MYGA past the guarantee period and cannot access the principal.

https://insurance-forums.com/communi...-rehab.108062/

A.M. Best Rating History: https://ratings.ambest.com/CompanyPr...AltNum=5018502

CBL website: https://cblife.com/

Quote:
CBL Rehabilitation FAQ: https://cblife.com/forms/FAQ_9_30_21.pdf

6) If the rehabilitation is, for some reason, not successful, then the Companies would be placed into Court ordered liquidation. Under liquidation there would be an effort to move all policies to solvent insurers, with the assistance of state guaranty associations. Those associations help protect policyholders up to state guaranty fund coverage limits.

11) How will surrenders or requests for distributions be handled during the rehabilitation?

In order to preserve assets for the benefit of all policyholders, the Court has ordered a moratorium on cash surrenders, new annuitizations, and policy loans, meaning they will not be honored so long as the Court’s order is in place. This moratorium has no set expiration date and will last until lifted by the Court.

14) My annuity matures soon. How are matured annuities handled?

Annuities that mature will be paid. Please be aware that there is a difference between Maturity Date and end of the surrender charge period. The Maturity Date is the contract anniversary date in the year following the date that the Annuitant reaches maturity age, typically age 95. This is different from the end of the surrender charge period. The surrender charge period is typically 3 to 7 years after you purchase the annuity. The end of the surrender charge period does not mean that the annuity has matured.
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Old 08-15-2022, 06:23 AM   #9
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This is interesting, CBL was relatively new and created in 1985. A lot of other insurance companies have been around since the early 1900s and a lot even longer. This is another example of buyer beware, do your research. Makes one only want to deal with A+ and above companies.

The differences between contract date and maturity date is not underhanded, it is very clearly stated in the first paragraph of the contract. At least it is on mine. And as mentioned the Maturity date is based on the annuitants 95th birthday. The contract date is actually the guaranteed rate for the return that was agreed upon when the contract was issued. Also as mentioned, the maturity date is longer, as the MYGA can be renewed or annuitized at the end of the guarantee period, and follows the Annuity rules.

Upon insolvency of the company, the process is similar to that of FDIC or NCUA coverage, just managed by a State's Guarantee Association. They do not just jump up and pay the claims, they explore all options and see if other institutions would take over the Bank or Credit Union prior to any payouts and that also can take years.
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Old 08-15-2022, 09:57 AM   #10
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Annuities that mature will be paid. Please be aware that there is a difference between Maturity Date and end of the surrender charge period. The Maturity Date is the contract anniversary date in the year following the date that the Annuitant reaches maturity age, typically age 95. This is different from the end of the surrender charge period. The surrender charge period is typically 3 to 7 years after you purchase the annuity. The end of the surrender charge period does not mean that the annuity has matured.



So, this sounds like you may not get your money back at the surrender charge period if there is an issue with the insurer? Even if you contact them when needed?
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Old 08-15-2022, 02:32 PM   #11
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5-year 'A' rated CBL MYGAs issued in early 2015 are currently in limbo. Policy holders do not have access to the principal unless they can prove financial hardship. 5-years is when the guaranteed interest rate expires and the annuitant can make changes under normal circumstances. It is not a maturity date.


Thanks for the info and link to the insurance co forum. Somehow I knew but did not really understand the difference between the maturity date and guaranteed rate ending date. This has me thinking I will take the 10% annual withdrawal on the two MYGA’s I purchased from Americo to lower my risk. Going forward I need to develop some due diligence skills or stick with gold plated insurers.
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Old 08-15-2022, 04:01 PM   #12
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I see Americo has reduced the free withdrawal from 10% to 5% on their 5 yr MYGA. I also noticed the word “term” is used to describe the guaranteed rate period so perhaps that is why I was not clear on the maturity for these products. I wonder if other MYGA issuers are tweaking withdrawal terms?
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Old 08-15-2022, 04:07 PM   #13
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There are some "gold-plated" insurers like Mutual of Omaha and Nationwide (both Fortune 500 companies) currently paying north of 4% for a 5 year MYGA.

Personally, I stay away from the Gainbridges, Oceanviews, Americos, etc of the world and ONLY deal with Fortune 500 / Global 2000 companies on Annuities. Sure, the State Guarantee Agencies are there, but I have no desire to go through receivership where our money is in limbo for months or years. Not worth the extra 25 or so basis points, IMHO.
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Old 08-15-2022, 04:22 PM   #14
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Wondering about how the Fed raising rates going forward will impact 5 year Annuity rates..

I've always understood Fed Funds Rate (FFR) to most directly impact the 2-year yield.

10 year yield is typically tied most directly to expectations about the economy. (That's why when the 2 and 10s invert, people freak out and predict an upcoming recession).

I'd "think" the 5-year Treasury would be the one that most influences 5-year Annuity rates, but am not sure.

If that's the case, 5-year T-Bill yield has dropped roughly a half percent since mid June. So, even if the Fed raises rates an expected 50 bps in September, it may not cause 5-yr MYGA rates to increase as FFR seems to not impact 5-year yield directly. And, the big, blue chip Insurers like W&S, NY Life, USAA, etc - basically all the ones Fido carries - all dropped about 50 bps in line with the 5-yr over the last 30-60 days..interesting.

Thoughts?
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Old 08-15-2022, 04:37 PM   #15
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There are some "gold-plated" insurers like Mutual of Omaha and Nationwide (both Fortune 500 companies) currently paying north of 4% for a 5 year MYGA.

Personally, I stay away from the Gainbridges, Oceanviews, Americos, etc of the world and ONLY deal with Fortune 500 / Global 2000 companies on Annuities. Sure, the State Guarantee Agencies are there, but I have no desire to go through receivership where our money is in limbo for months or years. Not worth the extra 25 or so basis points, IMHO.
Yep, it took me about a decade to get my 401K out of Mutual Benefit Life when they went under. And with all the gyrations, changes, and different interest rates, I have no idea if what I got was really what I was supposed to have gotten.

Do not give an insurer your money without doing real good due diligence.
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Old 08-15-2022, 09:49 PM   #16
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Wondering about how the Fed raising rates going forward will impact 5 year Annuity rates..

I've always understood Fed Funds Rate (FFR) to most directly impact the 2-year yield.

10 year yield is typically tied most directly to expectations about the economy. (That's why when the 2 and 10s invert, people freak out and predict an upcoming recession).

I'd "think" the 5-year Treasury would be the one that most influences 5-year Annuity rates, but am not sure.

If that's the case, 5-year T-Bill yield has dropped roughly a half percent since mid June. So, even if the Fed raises rates an expected 50 bps in September, it may not cause 5-yr MYGA rates to increase as FFR seems to not impact 5-year yield directly. And, the big, blue chip Insurers like W&S, NY Life, USAA, etc - basically all the ones Fido carries - all dropped about 50 bps in line with the 5-yr over the last 30-60 days..interesting.

Thoughts?


I think FFR has very little impact on rates beyond 2 yrs and I am amazed how many posters here are waiting to invest in anticipation of a significant change after a rate change that everyone expects.
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Old 08-15-2022, 09:55 PM   #17
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Quote:
Originally Posted by 24601NoMore View Post
There are some "gold-plated" insurers like Mutual of Omaha and Nationwide (both Fortune 500 companies) currently paying north of 4% for a 5 year MYGA.

Personally, I stay away from the Gainbridges, Oceanviews, Americos, etc of the world and ONLY deal with Fortune 500 / Global 2000 companies on Annuities. Sure, the State Guarantee Agencies are there, but I have no desire to go through receivership where our money is in limbo for months or years. Not worth the extra 25 or so basis points, IMHO.


I am coming around to the same view and I have been very comfortable with B rated insurers up to this point. I chose Americo because their rates were as good or better than most B+ rated insurers and the Gold Plated guys were > 2% less.
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Old 08-16-2022, 07:36 AM   #18
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There are some "gold-plated" insurers like Mutual of Omaha and Nationwide (both Fortune 500 companies) currently paying north of 4% for a 5 year MYGA.

Personally, I stay away from the Gainbridges, Oceanviews, Americos, etc of the world and ONLY deal with Fortune 500 / Global 2000 companies on Annuities. Sure, the State Guarantee Agencies are there, but I have no desire to go through receivership where our money is in limbo for months or years. Not worth the extra 25 or so basis points, IMHO.

Thanks for the insight. I do not want to rate chase when issues may arise. I will be buying from Mutual of Omaha and Nationwide this month. Does anyone have experience here with North American Insurance?
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Old 08-16-2022, 04:31 PM   #19
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I think FFR has very little impact on rates beyond 2 yrs and I am amazed how many posters here are waiting to invest in anticipation of a significant change after a rate change that everyone expects.
I'd agree. In fact, rates on Blue Chip MYGAs DROPPED (by roughly half a percent) over the same period the Fed raised rates by 75 basis points.

It'd seem unlikely for 5-year CD and MYGA rates to go up when the Fed raises rates again (September, likely by 50 bps).

The 2 and 3 year CDs (and possibly MYGAs) on the other hand, MAY go up.

But not the 5, 6 or 7 year terms.
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