According to recent studies, around 2 in 5 Americans are concerned about not having enough money saved for retirement, which is in line with conclusions from the Federal Reserve’s 2022 Survey of Consumer Finances that found that families on average only have $87,000 saved for their retirement. What does all this mean?
It means that the average American family only has around 1 year of expenses saved for retirement. The need for a risk-managed retirement plan that can grow wealth consistently has never been clearer.
Multi-year Guaranteed Annuities or MYGAs are often suggested for risk-managed retirement plans. However, no retirement product is ideal in all situations. This article provides a clear understanding about MYGAs and how they can fit into a overall retirement plan.
Common Retirement Risks For Pre-Retirees
The most common risks pre-retirees consider as they grow their retirement accounts include:
- Market downturns, which may impact the account value, especially if cash is needed frequently before retirement age
- Sequence of returns risks, which means the account’s performance is down as retirement begins, making it drain faster than it should after the first withdrawals
- Longevity concerns about depleting savings, incurring unexpected medical expenses
These and other risks are why shifting focus from maximizing accumulation to protecting value is essential during the pre-retirement planning stages.
How MYGAs Provide Value
The most attractive benefit of a MYGA is that it resists market changes. When the account is opened, the interest rate, which determines the account’s returns, is set according to the contract for the term of the loan which is usually between 3 and 10 years. During that time, the account will grow predictably.
If the market turns down, the account is protected, providing predictable returns when other accounts may be experiencing loss. This aspect of MYGAs is attractive for those who want to shield their retirement funds from economic risk, especially if they are closer to retirement.
Although the account is stable during volatile periods, it will not benefit from a booming market. This makes MYGAs a solid complement to other annuity and retirement planning tools, rather than a sole source of income.
How MYGAs Work Alongside Other Strategies
To help summarize how MYGAs fit into a holistic retirement plan, consider the following features:
| Feature | MYGA | CD | Bonds | Mutual Fund |
|---|---|---|---|---|
| Growth Strategy | Fixed Interest Rate | Fixed Interest Rate | Variable, based on price | Market performance-dependent |
| Tax Status | Tax-deferred | Taxed annually (interest) | Taxed annually (interest) | Taxed annually (dividends/capital gains) |
| Protection | 100% (insurer strength) | 100% (FDIC-insured) | Based on issuer credit | 0% (losses dependent on market) |
| Cash Access | Limited (subject to surrender charges) | High (after maturity) | Tradeable | High |
| Desired Goal | Predictable growth | Short-term savings | Income increases | High-risk growth |
| Risk Level | Low | Low | Mid | High |
Consult with a local financial advisor to learn more about how MYGAs can fit into a larger retirement strategy.
Paired With Market-Based Products
MYGAs provide a fixed rate of return, but this can limit growth. Market-based products like mutual funds can achieve higher growth, but at the expense of volatility. When paired, these products can provide the best of both worlds, achieving both stability and accumulation through a more diverse portfolio.
Integrated With Income Planning
Before other income streams begin, such as Social Security, MYGAs can bridge the gap. For those who are planning retirement without a need for immediate income withdrawals, MYGAs can grow more conservatively while delaying tax burdens until the money is needed.
Those in high income brackets can benefit from tax-deferred retirement accounts including MYGAs, which offer more flexible income withdrawals for those who can wait, allowing the account grow.
Supporting Legacy Goals
As part of a holistic retirement strategy, MYGAs help guarantee funds are preserved for the retiree’s heirs. The value of the account is protected against unexpected market erosion, providing account holders with predictable accumulation for the term of their annuity.
Key Questions To Ask Before Adding a MYGA
Before adding a MYGA to an existing retirement strategy, consider these core questions as a way to test its viability in adding stability and value to your retirement plan:
- What is your timeline until retirement income is needed?
- How much liquidity will you need during the contract term?
- How does this product fit with the rest of your financial strategy?
Answering these questions can better prepare you to invest intelligently in your legacy by using tools like MYGAs to enhance your existing retirement plans. Consulting local financial experts can help answer these and other questions accurately for each individual’s situation.
Matador’s Comprehensive Planning Process
The Matador Milestone Process examines all risks, goals, and options to help people strategize their retirement holistically. Instead of focusing on a single product or strategy, the goal is to implement multiple plans at the same time to gain multiple benefits.
Our three-step plan to secure retirement legacies in any situation (Discovery, Strategy, and Annual Review) provides people with the means to recognize their retirement goals, form the right strategies to achieve them, and continuously review and improve their situation to make sure they’re always on target.
This team-based, educational approach to retirement is why so many have trusted us with their family’s legacy. Don’t settle for transactional product sales when personalized retirement plans are needed.
Protect Your Investment With Matador Insurance Services
At Matador Insurance, our team understands that many people nearing retirement are concerned about striking the right balance between investment income and safety. Depending on your retirement timeline and risk tolerance, one or multiple types of retirement accounts may be the right approach in your situation, including MYGAs. No single product is ideal for everyone, making it important to explore your options and find the strategy that fits.
Request a consultation today to learn about risk-managed retirement strategies and how MYGAs and other account types can apply to your future. Our white-glove service will guide you through every step of your retirement plan, from discovery to strategy and annual reviews, so that you always know what your account is doing and why your strategy is the best fit for your goals.