MYGA Annuities: A Safe Harbor for Nervous Investors Nearing Retirement

In today’s uncertain economic climate, investors approaching retirement are understandably anxious. With persistent market volatility, elevated interest rates, and growing concerns about a potential recession, many are questioning whether their portfolios can withstand another prolonged downturn. For those with a shorter time horizon—perhaps five to ten years from retirement—recovering from multiple years of negative stock market returns may not be feasible. In such cases, preserving capital and generating predictable returns becomes paramount.

This is where Multi-Year Guaranteed Annuities (MYGAs) come into play. Often described as the fixed-income cousin of CDs, MYGAs offer a unique combination of safety, simplicity, and tax deferral that can provide peace of mind in a turbulent market environment.

What Is a MYGA?

A MYGA is a type of fixed annuity that guarantees a set interest rate for a specific number of years, typically ranging from 2 to 10. In exchange for a lump-sum investment, the insurance company agrees to pay a fixed rate of return over the contract term. At the end of the term, the investor can withdraw their funds, reinvest, or annuitize the contract to receive ongoing income.

The Pros of MYGA Annuities

1. Guaranteed Returns
Unlike market-based investments, MYGAs provide a fixed rate of interest, eliminating exposure to market volatility. This makes them ideal for conservative investors or those nearing retirement who cannot afford significant losses.

2. Tax Deferral
Interest earned inside a MYGA grows tax-deferred until withdrawal. This can help investors manage their tax liability, especially if they anticipate being in a lower tax bracket during retirement.

3. Competitive Rates Compared to CDs
MYGAs often offer higher interest rates than traditional bank certificates of deposit (CDs), especially in a rising interest rate environment. This makes them an attractive alternative for conservative savers.

4. Simplicity and Predictability
With no hidden fees, complex structures, or market-linked formulas, MYGAs are easy to understand. You know exactly what you’re getting: a fixed rate for a fixed term.

5. Probate Avoidance
If properly structured, MYGAs can bypass probate and pass directly to named beneficiaries, making them a potentially useful estate planning tool.

The Cons of MYGA Annuities

1. Limited Liquidity
Most MYGAs impose surrender charges if you withdraw more than a small percentage (typically 10%) of your funds before the contract term ends. This can make them less flexible if you need early access to your money.

2. Inflation Risk
Because the rate is fixed, MYGAs do not provide protection against inflation. Over time, the purchasing power of your returns may erode if inflation remains high.

3. Opportunity Cost
Locking into a fixed rate means you could miss out if interest rates rise significantly after your purchase. You’re committed to the rate, even if better options emerge.

4. No Market Upside
Unlike variable or indexed annuities, MYGAs do not offer any exposure to potential stock market gains. They are designed for stability, not growth.

5. Insurance Company Risk
MYGA guarantees are only as strong as the financial stability of the issuing insurer. While most are backed by state guaranty associations (up to certain limits), it’s important to choose a company with a strong credit rating.

Is a MYGA Right for You?

For investors nearing retirement—or already retired—who are uneasy about current market conditions, MYGAs can serve as a valuable tool to preserve capital, generate reliable income, and sleep better at night. They are particularly compelling for those with a short to medium time horizon who want to sidestep the uncertainty of market-based investments without settling for the ultra-low returns of traditional savings accounts.

However, MYGAs are not a one-size-fits-all solution. It's important to weigh your need for liquidity, your views on future interest rates, and your broader retirement income plan before committing.

In a world where safety and certainty are in short supply, MYGAs offer something increasingly rare: a guarantee. And for the right investor, that could make all the difference.