Why wouldn’t someone buy a MYGA?

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

A MYGA plus annuitization strategy has more liquidity and optionality, but a DIA will offer higher income payments.

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.