Any reason not to do a MYGA?

[Finally FI]

Our AA is ~60/40. That 40% is in money market funds, which have now dropped to 3.6 - 3.7%. Our Fidelity rep shared that they have 3-year MYGA rates (AA or better) at 4.75, over 1% higher. They're through USAA, if that matters. I'm not finding any CDs close to that.

The money in question is all pre-tax, so the MYGA tax deferral benefit does not come into play.

I'm about to pull the trigger on moving half of the money (20%) out of the MM funds and into a couple of MYGAs, but thought I better ask here first.

Our WD rate has been under 1.7%, so near-zero chance of needing the money in the next 3 years.

Is there any downside I'm not thinking of?

 

[RetiredHappy]

No downside. My spouse has about half a million in MYGAs with at least A+ rating. The ones that are brokered by Fidelity all have A++/Superior ratings, which means they are close to 100% safe. There is always the state insurance guarantee up to a certain amount per insurer depending on the state.

 

[RunningBum]

Don't MYGAs have a term, like CDs? That would be what you want to compare to, not MMs. I see you did mention CDs, but the only rate you quote, and the only money you are moving, is MMs.

 

[engineernerd]

MYGAs have stronger penalties for cashing them in early than do CDs, so it'd be a possible downside that you couldn't use the money to rebalance if/when the stock market offers bargains (i.e. tanks). [EDIT: Well, you COULD, it would just be more painful than using your MM funds.]

There is also this issue to be aware of:

https://cepr.net/publications/you-bet-your-life-insurance-private-equity-comes-for-your-annuity/

It's unclear how you would tell whether a particular insurance company is private-equity owned, and of course you'd have no way to prevent your issuing company from being bought after you purchased your MYGA(s).

I'd recommend staying under the coverage limits of your state's Life Insurance Guaranty Association and buying MYGAs from more than just one company.

BTW, this site lets you shop a wide range of companies and maturities: Guaranteed Fixed & Income Annuities | Blueprint Income

 

[Al18]

In order to get the 4.75% rate from USAA, you'll need to invest at least $100K. A smaller investment will get you a 4.35% rate.

I think MYGA's are a better investment than MM, because they lock you into a rate for a number of years. 3-7 years are common, but you can lock your rate for up to 10 years.

Also most MYGA's allow you to withdraw up to 10% per year penalty free. You need to pay taxes when you make a withdrawal.

You'll need to check your state's Life Insurance Guaranty Association value. In my state, it covers $250K per company for MYGA's.

 

[jazz4cash]

MYGAs have stronger penalties for cashing them in early than do CDs, so it'd be a possible downside that you couldn't use the money to rebalance if/when the stock market offers bargains (i.e. tanks).

There is also this issue to be aware of:

https://cepr.net/publications/you-bet-your-life-insurance-private-equity-comes-for-your-annuity/

It's unclear how you would tell whether a particular insurance company is private-equity owned, and of course you'd have no way to prevent your issuing company from being bought after you purchased your MYGA(s).

I'd recommend staying under the coverage limits of your state's Life Insurance Guaranty Association and buying MYGAs from more than just one company.

BTW, this site lets you shop a wide range of companies and maturities: Guaranteed Fixed & Income Annuities | Blueprint Income

I am a big fan of MYGAs, especially highly rated issues through a broker like Fidelity. This post captures my concerns pretty well. The one thing I’ll add is to understand that SGA coverage for annuities is valuable but it IS NOT nearly as good as FDIC. It isn't backed by any Federal or even state government agency and it is not insurance.

 

[Luvtoride]

Absolutely no downside to investing in MYGAs for “safe cash” allocation. I’ve had MYGAs for the past 6 years for that portion of my retirement portfolio. Rates were at 7.5% initially and now at 5%. I’ve been taking distributions monthly for the past 3 years since I retired and the principal is still higher than my initial investment. This MYGA will “mature” in August and I will need to decide how to reinvest the principal. I don’t think I will get as favorable rates but I’d have no qualms to reinvest into a similar MYGA product if the rates and terms make sense.
Good Luck!

 

[COcheesehead]

There is a boogie man under the bed of some insurance companies as mentioned. The problem is finding who is holding the bag of bad private credit.

 

[Livefree]

We just purchased this USAA MYGA from Fidelity recently. We did 4 years for 4.8%

 

[Jerry1]

I’ll have to look again, but the last time I looked, none of the annuities at Fidelity were as good as could be done by going through an outside broker. I would look elsewhere before I made a decision.

 

[GenXguy]

You should still be able to get over 5% with a A or A- rated through somewhere like immediate annuties.

At Canvas, B++, you can still get 6%.

 

[Al18]

I think all the MYGA at Fidelity are all AA+. There are better rates available at blueprintincome.com and others if you select an A or A+ rated company.

 

[Bruno]

As i get older I wanted to keep everything under one roof. I also bought a USAA 250k 5 year 4.7% at Fido little over a year ago in my IRA. Like others I have had several MYGA without any problems. Like one said Dont buy it if you need the money before the contract is up.

 

[GenXguy]

As i get older I wanted to keep everything under one roof. I also bought a USAA 250k 5 year 4.7% at Fido little over a year ago in my IRA. Like others I have had several MYGA without any problems. Like one said Dont buy it if you need the money before the contract is up.

There's normally a provision to allow 10% penalty free withdrawal from the MYGA per year, however, it is interest first when taken before the end of the contract period, so if it's not in a qualified account, that 10% penalty free withdrawal would likely all count towards your AGI.

 

[pb4uski]

...Is there any downside I'm not thinking of?

Not in your situation. You don't expect to need the money so surrender charges are not a concern. Money is pre-tax so deferred income aspects are not an issue.

4.75% is a good rate. My go-to for 3 year money would be IBDU, iShares® iBonds® Dec 2029 Term Corporate ETF which is similiar credit risk and matures in Dec 2029 and currently yields 4.35% so close, but mot quite as good but much more liquid since you can sell anytime.

I don't think that the private credit thing is much of an issue with USAA but I'd be more wary of any Apollo/Athene MYGA and some others. This trend of the PE companes buying insurers to take control of their investments was just emerging towards the end of my career and I recall working on a deal where Apollo/Athene was buying an insurer.

 

[Dtail]

I’ll have to look again, but the last time I looked, none of the annuities at Fidelity were as good as could be done by going through an outside broker. I would look elsewhere before I made a decision.

That is because Fidelity only deals with AAA rated companies, while outside brokers can go much further down the credit scale.

 

[Marc]

I just purchased $100K of the USAA 3yr at 4.75% in my Fidelity Rollover IRA. Terrible amount of paperwork all prepared by my Fidelity Rep. I'm hoping as easy to get money back in three years. I like that it still shows up in my Fidelity online account and also in analysis screens.

 

[VanWinkle]

SO has her first rung of a 3,4, and 5 year MYGA ladder coming due in Jan 2027. We're still working
on a plan to extract the non-qualified 225K of the first rung with the lowest tax hit. Thinking of
a 15 year income annuity to spread out the tax hit instead of the lump sum.

 

[lauradrops]

We have 2 through Fidelity, both under the state limit. We take some of the monthly interest for income. Has worked out very well for us.

 

[jazz4cash]

Any reason not to?
-The insurance companies are not offering free money by offering more attractive rates than CDs/treasury bonds, they know that some percentage of people will die and then they get to keep the money.
-Insurance companies sometimes go bust and it could take time to get your money back.

That does not apply to MYGAs. I don’t know how that is relevant this thread. I 100% agree with you on taking time to be reimbursed if there is a default.

 

[pb4uski]

Any reason not to?
-The insurance companies are not offering free money by offering more attractive rates than CDs/treasury bonds, they know that some percentage of people will die and then they get to keep the money.
-Insurance companies sometimes go bust and it could take time to get your money back.

Wrong. You don't know what you are talking about.

MYGAs are the insurance company version of CDs so the insurance company doesn't get to keep the money if you die. Even with life annuities, they have versions with guaranteed return of premium or 10 years of payments to mitigate the risk of dying early.

The reason that they can offer better rates than CDs or Treasuries is because they profit off the spread between what they pay you and the corporate bonds and other higher yielding fixed income securities that they invest in.

After regulatory reforms enacted in the wake of the Executive Life and Mutual Benefit Life insolvencies in the late 1980s insolvencies have been rare.

Please stop giving bad advice.

 

[Exchme]

That does not apply to MYGAs. I don’t know how that is relevant this thread. I 100% agree with you on taking time to be reimbursed if there is a default.

You are right, I deleted my post.

 

[ShokWaveRider]

Wrong. You don't know what you are talking about.

MYGAs are the insurance company version of CDs so the insurance company doesn't get to keep the money if you die. Even with life annuities, they have versions with guaranteed return of premium or 10 years of payments to mitigate the risk of dying early.

The reason that they can offer better rates than CDs or Treasuries is because they profit off the spread between what they pay you and the corporate bonds and other higher yielding fixed income securities that they invest in.

After regulatory reforms enacted in the wake of the Executive Life and Mutual Benefit Life insolvencies in the late 1980s insolvencies have been rare.

Please stop giving bad advice.

I love your frankness, keep it up. Hopefully some day it will limit some of the bad info we get here. I may even be responsible for some too on occasion. I am grateful when corrected.

 

[pb4uski]

I'm sorry. I was a bit harsh. To get one aspect wrong would be forgivable as these things are complicated but so many falsehoods in a single post was unbearable.

I've been guilty of that sometimes too.

 

[FD1000]

MYGAs may be a promising option for some investors, depending on their goals and investing style.
For me, they’re not a fit.

I haven’t held money market funds, CDs, or Treasuries, other than for 2–3 months for emergency needs, in decades. All my money (over 99%) is invested and working for me. The only exception is during periods of unusually high risk.

Why?

• I can always sell other assets to cover expenses if needed.
• I’ve done well using bond mutual funds since 2010 and prefer allocating less or none to stocks while relying more on specialized bond funds.
• I’ve seen excellent opportunities in bonds after major declines.
• As long as my brain works and I'm actively managing my finances, I’m not inclined to lock up money for extended periods, not even for 3-6 months.

Give me 8% and inflation under 3% and I'll think about it.

SNAXX (Schwab MM) is paying now 3.6%. If rates go down, MM will be lower, but my bond funds would do much better. So, while it's good to lock higher rates for CD,treasury,MYGA it's the best time to buy bond funds.
It's all about timing.

==============

Look what HOSIX did in the last 3 years. I will take my chances.