Someone wouldn’t buy a Multi-Year Guaranteed Annuity, or MYGA, if he/she is focused on generating retirement income, in which case an income annuity would be the right purchase. A MYGA is also not the right investment for someone looking for a higher expected return and willing to risk principal to achieve it. To expand on each reason:
Focused On Generating Retirement Income
A MYGA is an accumulation annuity. Money invested in a MYGA will grow at a fixed rate for a specified number of years. Upon maturity, there are multiple options including withdrawing all or some of the money, rolling it over into a new MYGA, or annuitizing. Annuitizing is the process of converting assets into a stream of payments made at regular intervals for a number of years or for life. While it’s possible to generate income this way with a MYGA, it’s not optimal. Instead, purchasing a Deferred Income Annuity, or DIA will generate more income, but there is a tradeoff in the form of lost liquidity.
MYGA & Annuitization vs. A DIA Today
Higher Expected Return
MYGAs do not offer equity market exposure or the potential for high returns. Instead, the product offers a guaranteed, locked-in rate, much like a CD. Thus, a MYGA is more suited for someone looking for a low-risk, short-term investment that does not put his/her principal at risk. Someone looking for higher expected returns and willing to risk principal to achieve it should instead be invested in the stock market.
Use Blueprint Income’s Fixed Annuity (MYGA) Marketplace to see current rates and compare products online.