Multi-Year Guarantee Annuities (MYGAs) have become one of the more practical tools available to retirees and pre-retirees looking for predictable, low-risk growth. As a type of fixed annuity, they offer something straightforward: a guaranteed interest rate locked in for the full length of your contract, with no market exposure and no annual rate resets.
For anyone navigating the transition into retirement, the volume of financial decisions can be overwhelming. MYGAs cut through a lot of that complexity. This guide breaks down how they work, what sets them apart from other fixed annuity products, and where they fit within a broader retirement income strategy, so you can weigh the tradeoffs clearly and move forward with confidence.
What Is a Fixed Annuity?
A fixed annuity is a contract between you and an insurance carrier in which the company guarantees a declared interest rate for an initial period, typically one year, after which renewal rates are set annually subject to a contractual minimum. Interest accumulates on a tax-deferred basis throughout the contract, meaning you do not owe taxes on earnings until you begin taking distributions in retirement.
It is worth distinguishing traditional fixed annuities from fixed index annuities, which tie growth to the performance of a market index and introduce a level of variability that neither traditional fixed annuities nor MYGAs carry. Both traditional fixed annuities and MYGAs accumulate funds at a defined rate over a defined period. The key difference is consistency: a traditional fixed annuity may reset its declared rate annually after the initial guarantee period, while a MYGA holds the same guaranteed rate for the entire contract term, giving you a clearer and more predictable growth picture from start to finish.
What Is a Multi-Year Guaranteed Annuity?
A multi-year guaranteed annuity (MYGA) is a type of fixed annuity that sets the interest rate on the account for the term of the contract. As with other fixed annuities, this contract is established with an insurance company. However, one major difference is that with MYGAs, buyers pay a premium, which is the insurance company’s incentive to provide fixed interest regardless of market conditions.
Once the term of the contract has ended (usually 3-9 years), the buyer has several options:
- Renew the MYGA with new terms and interest rates.
- Withdraw the cash without incurring penalties in either a lump sum or multiple partial withdrawals, provided the contract has gone past its predetermined period.
- Annuitize the account to receive guaranteed payouts from the insurance company for a timeframe up to the rest of the buyer’s life.
- Move the growing balance to a traditional financial account.
Although this flexibility is appealing to many pre-retirees, it is particularly favored by those whose retirement plans change as they get closer to retirement age.
MYGAs vs. Traditional Fixed Annuities: Advantages and Tradeoffs
MYGAs and traditional fixed annuities share the same foundation, but they are not the same product. Understanding where they differ is essential before committing to either one. Each comes with its own set of advantages and tradeoffs depending on your timeline, liquidity needs, and retirement income goals.
Fixed vs. Variable Interest Rates
One of the defining features of a MYGA is that the guaranteed rate holds for the entire contract term, not just the first year. Traditional fixed annuities typically lock in a declared rate for year one and then reset annually after that, leaving you exposed to rate fluctuations you cannot plan around.
The tradeoff with a MYGA is opportunity cost. If market interest rates rise after you lock in your contract, your rate stays fixed and you miss out on higher yields until your term ends. This is worth factoring into your decision, particularly in a rising rate environment, and is one reason why choosing the right contract length matters as much as the rate itself.
Required Premiums To Open
MYGAs are typically funded with a single lump sum premium paid upfront at the time the contract is opened. This is different from traditional fixed annuities, which often allow for multiple premium payments over time, spreading out the initial financial commitment. Some MYGA contracts do offer a multi-premium option, but it is not common and varies by carrier. If funding flexibility is a priority, it is worth confirming the premium structure with your advisor before selecting a contract.
Withdrawal Fees
These may be penalty-free with a MYGA or fixed annuity up to a certain percentage of the account’s value within a predetermined period, called the surrender charge period. In either case, withdrawals before the buyer reaches the age of 59 ½ will receive a federal tax penalty equal to 10% of the taxable portion of those withdrawals.
Taxes
Both MYGAs and traditional annuities offer tax-deferred growth, which means the buyer only pays taxes on their account when they withdraw funds as income.
Performance-Based Payouts
Both traditional fixed annuities and MYGAs have guaranteed payout rates that do not decrease due to market performance, unlike fixed index annuities, which are tied to the performance of an index.
Term Options
A MYGA and traditional fixed annuity have different term options. While MYGAs have term options at set intervals, usually under 10 years, traditional fixed annuities continue growing at the terms set by the agreement for the lifetime of the contract, with an interest rate that can change annually.
Reach Out To Matador Insurance To Choose The Right Annuity For Your Situation
A MYGA is a fixed annuity, which like a traditional fixed annuity, offers a chance to grow retirement income based on predetermined rates and terms. Unlike other fixed annuities, these account contracts only last a few years, giving buyers a chance to see if they work in their situation compared to other options.
At Matador Insurance, our goal is to help pre-retirees open accounts that work toward securing their financial futures, with clearly communicated plans for their specific situation. Contact our team today to learn about the advantages, disadvantages, and terms of different kinds of annuities.
Frequently Asks Questions
The primary difference is how long the guaranteed interest rate holds. A traditional fixed annuity locks in a declared rate for the first year and then resets annually at whatever rate the carrier sets, subject to a contractual minimum. A MYGA holds the same guaranteed rate for the entire contract term, typically two to nine years, giving you complete rate predictability from the day you sign through maturity.
No. Both MYGAs and traditional fixed annuities offer guaranteed payout rates that do not decrease based on market performance. Unlike fixed index annuities, which are tied to an index, MYGAs carry no market exposure. Your principal is protected and your rate is fixed regardless of broader economic conditions.
MYGAs are typically funded with a single lump sum premium paid upfront when the contract is opened. Traditional fixed annuities often allow for multiple premium payments over time, which can reduce the upfront financial commitment. Some MYGA carriers do offer multi-premium options, but this is less common and varies by contract.
At the end of your contract term you have four primary options: renew the MYGA under new terms and interest rates, withdraw your funds as a lump sum or partial withdrawals without penalty, annuitize the account to receive guaranteed income payments for a set period or for life, or move the balance into another financial account. This flexibility is particularly useful for pre-retirees whose plans evolve as they approach retirement.
Both MYGAs and traditional fixed annuities offer tax-deferred growth, meaning you only pay taxes on earnings when you withdraw funds as income. Penalty-free withdrawals are typically available up to a set percentage of your account value within the surrender charge period. Any withdrawals taken before age 59 and a half are subject to a federal tax penalty equal to 10% of the taxable portion of those distributions, regardless of the annuity type.
