If you’re getting close to retirement age, growing your accounts without risking your hard-earned retirement is likely a priority. Rolling funds into an annuity like a Multi-Year Guaranteed Annuity (MYGA) can be an effective way to achieve stable and predictable growth. Therefore, knowing the timing of the account’s growth is important.
This guide walks through the process of rolling to a MYGA, the financial benefits of doing so, and also the challenges and considerations that should factor into any decisions that may impact your legacy. Before moving your funds to a new account, make sure you know all the details.
Essential Insights For Those Considering a MYGA
A MYGA is a type of fixed annuity favored for having predictable growth. This reputation is derived from the way MYGAs function which is similar to a bank CD, except they’re opened through an insurance company and assigned a fixed rate of growth. Like a CD, they also mature after a set period, usually 3, 5, 7, or 10 years.
After they mature, the funds in a MYGA can be withdrawn, rolled into another MYGA, or annuitized, which means they can be separated into future payments. Growth in these accounts is tax-deferred, which means buyers don’t have to pay taxes on MYGAs until they withdraw them, making cash flow more predictable.
Benefits & Challenges Of MYGAs
In addition to tax advantages, predictable growth helps those who want to leave nothing to chance when setting up their retirement accounts. Though MYGAs may yield less than some high-return accounts such as traditional stocks, they provide stability in uncertain economic times.
It’s important to note that MYGAs offer less access to liquid funds than some other options. This means those who need consistent cash flow in the short term may want to consider a strategy that also includes more short-term flexibility.
Despite offering less overall growth in some economic conditions, MYGAs are beneficial for balancing well-structured retirement plans, and are helpful for those who value safety over growth.
How Timing Can Affect Growth
Timing can affect the growth of MYGAs, especially since the funds are locked in for the duration of the loan. Before setting the contract term, consider these four timing factors that could impact the final value of the account after retirement.
Time To Retirement
Most people start high-risk, high-reward accounts further from retirement to allow time to recover from potential market downturns. MYGAs work best in short or mid-term time horizons since the contract terms can be comparably shorter in duration. Providing predictable growth in a set amount of time, they safeguard against unfavorable market fluctuations in exchange for known return potential.
Interest Rate Trends
Interest rate trends impact the value of a MYGA based on when the account is opened and when it matures or rolls over into a new account. If interest rates are higher, buyers can lock in more aggressive growth potential for longer. If interest rates are lower, buyers may benefit by using shorter account terms. Unlike market-dependent accounts like stocks, MYGAs will not shift with economic changes during the term of the annuity, making it less risky to time the account based on interest rate trends.
Short-term Cash Needs
MYGAs allow limited withdrawals during the account term, usually up to 10% per year. However, large withdrawals before maturity may result in penalties known as surrender charges. Those who frequently need access to cash sums may prefer to balance their MYGAs with money market accounts, which provide easy access to funds. Speak with a professional to better understand the downside of withdrawing funds prematurely.
Individual Tax Context
Funds that are rolled over to a MYGA retain their tax-deferred status, helping account holders take advantage of good market conditions when they rollover money from traditional IRAs into MYGAs. However, the tax context for every account is different, which is why a local financial advisor should be consulted on how to time a MYGA for the maximum advantage in your situation.
Effectively Plan Your Retirement With An Advisor’s Help
A MYGA can be the cornerstone of a secure retirement strategy, but no single account type is ideal in every situation. Timing the opening, maturity, or rollover of a MYGA can be difficult for those with little investment experience or knowledge, but local advisors can help you direct your hard-earned money to the right account at the right time.
At Matador Insurance, our goal is to offer a client-focused, personalized legacy planning strategy to make sure every detail is covered in your transition to retirement. Our team places a strong emphasis on fixed annuities due to how they easily fit into many holistic retirement strategies, offering tax-deferred status and stable growth. They can often be combined with other account types and re-strategized after each loan term to make the most of current market conditions while giving the account owner the cash flow they need.
Contact our team at Matador Insurance to learn how timing could impact your MYGA account, and how a holistic plan personalized to your exact situation can help to shield your legacy from market changes and mistimed decisions on your road to retirement.