MYGA's, Annuities, CDs - Decisions, Decisions.

[ShokWaveRider]

Bear with me before you Poo-Poo this thought. Our ages are 68 & 63 Respectively. 50% of stash is in Qualified funds and the other 50% is taxable.

Now that the Sooth Sayers are predicting a few increases in interest rates, the 10 year bond that most of the above are loosely linked to from a rate perspective, should increase.

After a few rate increases MYGAs and CDs should begin to look more attractive. My goal is to jump in when these rates clear 4% and approach 5%. Hopefully this will happen.

I am thinking of a few laddered MYGAs (That can be annuitized) up to the limits of our state's Annuity Guarantee fund. As DW utilizes ACA we really cannot (or at least do not want to) do Roth Conversions, or we will give 50% of what we save back to BCBS.

For us our desired rate of return is 4%. currently along with DW's SS & Canadian State Pension, my UK & Canadian State Pensions (SS Equivalent) + our stash we have more than enough and probably take >2% of our stash annually. When I turn 70 and collect USA SS that will be >1%. Why 4%? Because at 4% we pretty much live like kings IOHOs. We are not likely to buy a plane or a new expensive home, and currently we still save a little every year. We have no one to leave anything to with the exception of a few charities that are in our will, so leaving a mountain is not in the cards.

I am now starting to review insurance companies for MYGAs. My gut says A+ ratings or above is what to go with, but B, B+ and B++ seem to be ~1% more, for a good reason I presume.

Anyone have any opinions about Annuity insurance companies and their associated ratings?

 

[njhowie]

For us our desired rate of return is 4%. currently along with DW's SS & Canadian State Pension, my UK & Canadian State Pensions (SS Equivalent) + our stash we have more than enough and probably take >2% of our stash annually. When I turn 70 and collect USA SS that will be >1%. Why 4%? Because at 4% we pretty much live like kings IOHOs. We are not likely to buy a plane or a new expensive home, and currently we still save a little every year. We have no one to leave anything to with the exception of a few charities that are in our will, so leaving a mountain is not in the cards.

I am now starting to review insurance companies for MYGAs. My gut says A+ ratings or above is what to go with, but B, B++ and BBB seem to be 1% more, for a good reason I presume.

Based on the first paragraph, what you're considering in the second doesn't make too much sense (to me). What is the draw to moving down the quality ladder to get the extra 1% if you have no particular need for it?

 

[ShokWaveRider]

Based on the first paragraph, what you're considering in the second doesn't make too much sense (to me). What is the draw to moving down the quality ladder to get the extra 1% if you have no particular need for it?

I guess this was my overall question to myself. I wondered if B rated companies are that bad, and if anyone here utilized them.

 

[TheWizard]

When fixed income investments go to 4%or 5%, there's a decent chance that INFLATION will be even higher.
So be careful what you wish for and put more money into stock index funds...

 

[Bruno]

I have had a Sentinel B++ and renewed it after 5 yrs. They are a little harder to get on the phone. BBB has them rated a A- but the reviews are not too good. I just hope in couple more years it will not be a problem getting my money out.

 

[jazz4cash]

Im not sure I’ve ever seen an annuity issuer rated BBB. That sounds like a bond rating which i believe is frequently confused with an annuity issuer rating. I have no problem with annuity ratings of B+ or better but I might use several providers to keep the principal well below the State Guaranty Assoc limit. I’d also reach for yield by using a longer ladder vs. lower issuer ratings but that is riskier if inflation persists….mix in some ibonds as described in other threads to hedge that risk.

Im seeing annuity issuers respond more quickly to rising rates compared to CDs

 

[Chuckanut]

When fixed income investments go to 4%or 5%, there's a decent chance that INFLATION will be even higher.
So be careful what you wish for and put more money into stock index funds...

Perhaps. Or perhaps not. Rates have been very low for a decade because the Fed has using its huge power to push them down and keep them down.

I remember when I could easily get 4% on a passbook savings account. Yet inflation was less than it is today. What is just plain awful about today is that in the midst of such high inflation (we're pushing double digits), interest rates are still topping out at 2+% for many of the traditionally 'safe' investments. I don't care if we blame it on Putin, Biden, money grubbing bankers, or the man behind the tree. Where is the outrage?

 

[pb4uski]

Im not sure I’ve ever seen an annuity issuer rated BBB. ...

I think that BBB is the Better Business Bureau... and that rating is essentially irrelevant.

 

[foxcreek9]

Perhaps. Or perhaps not. Rates have been very low for a decade because the Fed has using its huge power to push them down and keep them down.

I remember when I could easily get 4% on a passbook savings account. Yet inflation was less than it is today. What is just plain awful about today is that in the midst of such high inflation (we're pushing double digits), interest rates are still topping out at 2+% for many of the traditionally 'safe' investments. I don't care if we blame it on Putin, Biden, money grubbing bankers, or the man behind the tree. Where is the outrage?

Passbooks savings account rates were set by regulation until the the S&L meltdown in the late 80s. In the early 80s the banks were upset by the limit because people were taking their money out and moving them to MM accounts paying 15%.

 

[disneysteve]

Passbooks savings account rates were set by regulation until the the S&L meltdown in the late 80s. In the early 80s the banks were upset by the limit because people were taking their money out and moving them to MM accounts paying 15%.

I remember when bank accounts paid 5.5%. Any bank anywhere. You didn’t have to shop around. The rate didn’t vary every time the wind blew. That was the rate no matter what.

 

[jazz4cash]

I think that BBB is the Better Business Bureau... and that rating is essentially irrelevant.

Yeah there was a reference in a reply to the BBB, but OP referenced BBB as an issuer rating (see quote in post #2) and i guess it was edited. Maybe just a typo. NM.

 

[Dtail]

When fixed income investments go to 4%or 5%, there's a decent chance that INFLATION will be even higher.
So be careful what you wish for and put more money into stock index funds...

Perhaps, but wasn't like that in the 80's. Possibly too much debt to have massive upswing this time at least on the short end.

 

[jazz4cash]

I see no reason for outrage. Yes the war on savers is extremely frustrating but all you can do is make the most of it. Low rates/inflation have been good for stocks,business and people with mortgages. Yeah i think rates were too low for too long but i locked in a great fixed mortgage and decent CD rates before rates dropped. These are rates of 3.7-4.0 with maturities in the 2021-2023 range. Now it looks like I’ll get an opportunity to buy into a rising rate environment. Following the asvice posted here.

 

[pb4uski]

..... I am now starting to review insurance companies for MYGAs. My gut says A+ ratings or above is what to go with, but B, B+ and B++ seem to be ~1% more, for a good reason I presume.

Anyone have any opinions about Annuity insurance companies and their associated ratings?

Having worked in the industry for about 25 years, 12 years in financial management with an insurer and 13 years in consulting, I think that between regulatory surveillance, rating agency scrutiny (S&P, Moody's and Fitch) and state guaranty funds that the credit default risk of annuities is negligible.

While the capital requirements of the regulators and rating agencies provide a lot of cushion, even if a company gets in trouble the regulators should intervene and pressure the company to put together a plan to right the ship. If that fails, the regulators would intervene and in many cases "sell" blocks of business to more financially strong insurers. Finally, there is the state guaranty funds as a backstop.

While I can't find any evidence of this, I recall when I was in the industry that there was an urban legend that no annuity policyholder had ever lost a dime of principal... they might have not received the rate of interest that they were promised but they had always received at least their principal and the minimum contractual interest (or better and often what the contract called for with a couple exceptions)... and similarly, no annuity benefits in payout had ever gone unpaid.

I recall in the late 1990s that when Mutual Benefit Life went into rehabilitation that our company and a consortumium of other large insurers banded together and put in place a reinsurance package to backstop some of their separate account business. I changed employers in the middle of that initiative so I never got to see the end result but I have a vague recollection that the separate account assets recovered in value and everything worked out and the reinsurers ended up never having to step in.

Now, I've been out of the game for 11 years... 24 years since I've been in a company... so it might well have changed since then.

 

[ShokWaveRider]

What about SPIAs? Does anyone have one of those? We do not have any heirs so if we Kark it before we have been paid out (~20 years), we would not care.

 

[Luvtoride]

What Pb4 stated is very accurate. The ratings quoted for Insurance companies are AM Best ratings and a single A or a Higher B rating does indicate a financially solid company that would be able to pay all of their claims or liabilities. I wouldn’t hesitate to buy a MYGA product from those companies.

As for answering the phone or customer service that’s a whole different issue and not part of the Bests Ratings.

 

[ShokWaveRider]

What Pb4 stated is very accurate. The ratings quoted for Insurance companies are AM Best ratings and a single A or a Higher B rating does indicate a financially solid company that would be able to pay all of their claims or liabilities. I wouldn’t hesitate to buy a MYGA product from those companies.

As for answering the phone or customer service that’s a whole different issue and not part of the Bests Ratings.

Sooo B++ or better?

 

[Luvtoride]

Sooo B++ or better?

Yes, that rating would be fine. The insurance industry is highly regulated and licensing is handled by individual states. Insureds, especially individuals are well protected in the unlikely event of a company’s failure.