Watch out for scammers. I will never contact you, ask you to buy anything from me, or offer to invest your money. And I certainly won't be trying to sell you an annuity!
I have a question for you but maybe you have already covered this in some other video. I searched but could not find it as a topic. Also, I couldn't find the email for asking questions that you had mentioned in past vids. So have you covered quantum easing (the hidden inflation) and how that impacts our retirement goals. I know they say inflation has only been 4 or maybe 5% but seriously milk and bread have gone up more than 2.5x in the last couple of years.
I hope this ages well, I'm no longer confident in my strategy following the recent happenings. I'm approaching retirement with comfortable millions. How do you advise i protect my cash reserve?
Many overlook that banks are return-driven businesses. I don't trust keeping a large sum in a bank. Instead, I invest with guidance, enjoy the benefits, than save for retirement.
Agreed. It's always wise to be proactive and consider diversifying our investments to manage risks in uncertain economic times. I delegate my day-to-day investing to an advisor ever since suffering a major steep-down late 2019, amid rona-outbreak, and as of today, I'm semi-retired with barely 25% short of my $1m retirement goal after subsequent investments
I'm intrigued by this. I've searched for financial advisors online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?
Carol Vivian Constable is the licensed coach I use. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
Thank you for doing my initial research into MYGAs! My financial consultant at Fidelity suggested it when I brought up the exorbitant amount of taxes I'm paying due to a large amount of cash, dividend paying stocks and an inherited IRA. While taking into consideration my own investments, cash I built up to buy a vacation home and still working, from a tax deferred standpoint, a short term annuity seemed appealing until I retire in a year or two. Something I'm considering.
Good summary by Rob. I purchased a MYGA for the first time a few months ago from an A+ rated insurer and the interest rate was much higher than CDs or Treasuries after reviewing several sources. I will not need these funds for years and I can withdraw interest penalty free. I wanted to lock in a higher interest rates before the Fed started rate cuts and I wanted to defer taxes. While interest rates could go up again I think there is a better chance of rates staying below these levels for years to come and I am completely happy with the rate I received. CDs and Treasuries rates have already decreased in the last 8 weeks. I would not consider a MYGA with below A+ rating. There is a good bogleheads MYGA page with lots of good Q&As also.
Did it. Would never do it again. Not even close to equivalent to a CD in numerous ways. But if you must, only at minimum 1% more premium than same term CD for all the cons involved. As Bob said also, tax deferred, at maturity can 1035-exchange to another MYGA etc, but do have an exit strategy because there will be an onerous tax hit at possibly the worst time when you do exit.
Totally depends on your financial situation. We want to defer taxes to when we're in a lower tax bracket. Don't need the money at this time. Personally, I don't find many negatives if you aren't in a situation where you might need the money in the near future. Plus, our contract allows a 10% free withdrawal per year. Not sure what kind of financial problem situation you found yourself in. It's true they are not for everyone. But, for those who could benefit, I'd certainly recomment at least taking a look at them.
I do this with (some of my) Roth dollars, mitigating sequence of return risk, and enjoying Roth tax treatment for both rollovers in and rollovers out. After I hit retirement, I will rollover out the Roth MYGAs into a high equity portfolio to seed my tax-free withdrawals (SWR 2.5-3.0%, we will see). I simply could not resist a nearly risk-free nominal ~6% annual yield when the expected nominal total return of my desired investment portfolio is between 6-7% (with all the market and sequence risk that implies).
Avoid companies that also write property and casualty insurance policies. Ideally, pick a company that only does life insurance and annuities - virtually no risk of failure. In any case, failure is usually handled by a different company taking over the policies, not payment from the state guarantee fund.
I already own shares of NVDA, PALANTIR, TSLA, and APPL as well. Sure, I don't mind having these equities sit around for a while, but I'd also like to appreciate short-term opportunities that could fetch $300,000
hey rob, one piece of feedback, consider zooming in a little on some of these webpages for people who arent full screen or are on a smaller device. Cheers edit: you totally did it a bit in this video. thanks
I'm in the second year of a 7-year MYGA earning 5.57% with an A+ rated insurance company. Since you can defer paying taxes until maturity, it fit our financial plan because we will be in a lower tax bracket at that time with no one employed. Additionally, I like that you can also choose to rollover the entire amount into another annuity and further delay paying tax on the interest. If you choose, you can also annuitize the balance for an income stream. Lots of choices. More flexibility.
@@Andluth Rates have changed since I purchased it in 1/23. It was offered by Athene Life Insurance only using select big banks. I went with Wells Fargo.
@@tedosmond413 ... Yes. You can take a certain amount out along the way (depends on the carrier), or if you choose you can take it all in lump sum with return of principal at the end of the contract term.
I have two 10-year MYGAs for two Inherited IRAs under the SECURE Act 2.0. (And 4 other Fixed Lifetime SPIAs.) I bought them over time, so some are higher rates and some are lower. But I have no market risk, no longevity risk, and payments will last for 10-years/life, respectively. I'm investing the "extra" income back into the S&P 500 for the next annuity on the ladder.
I inherited several annuities from my mother. She had one annuity that had been sold from one insurance company to the next. My question would be, is there no way to ensure the annuity with an A+ company wont be sold to a company with a B rating? “Annuities may move from one provider to another if the company chooses to sell off its annuity contracts.”
This video was SUPER well done. You explained it perfectly. Typically, MYGAs will have higher rates, but high surrender fees, so make sure you know you won't need the money. You explained the interest rate / reinvestment risk well. They can be great tools, but it might not be suitable to your individual situation. One thing to note - the comission rate isn't necessarily a "fee" on the product. The insurance company will pay that, and there may be a correlation to the rates offered, but it's not a fee. Many indexed annuitites have $0 in fees, even if they do have a higher comisison rate. Typically, annuities don't have fees for accumulation focused products (MYGA, FIA, Fixed), but do have fees if they provide some other guarantee (death benefit rider, guaranteed income rider, etc).
Good video. I prefer AAA rated Agency bonds. Just got one yesterday at 6%. No state tax. Callable in 1 year which meets my timeline and if not called I am happy with 6%.
I agree with this option, Gov’t agency bonds. Higher interest than CD, but could be sold on the open market if you need the money. Also, most have quarterly payments. Not sure about the tax implications
On Schwab if you go to trade then bonds you will see agency bonds in the 4th column after CDs, treasuries and zero coupon bonds. Click on the duration you want. Once at the next screen you can modify search by date, minimum yield etc
Bought a 3,4 and 6 year all paying 4.75 except 6 year at 4.2% A+ ratings We can take out 10% a year penalty free . They compound interest daily. CD's do not compound. These are not callable also unlike some CD's I mixed a CD ladder with these instruments to define our fixed income allocation in the portfolio
When I looked, MYGAs from top rated companies (A & above) were not much more than you could get from an FDIC bank CD. One fear I have is that there is some hidden away gotcha in the MYGA contract---insurance companies are notorious for hiding important facts.
The contracts are fairly simple to read. MYGAs are pretty much plain vanilla investments. Most salespeople don't like them because they don't make as much on them. I found NO gotchas in our contract. And, I like making about $63/day. You MUST carefully read your contract to make sure you understand everything in it. Just be comfortable that it fits into your investment strategy. It's only one piece of the puzzle.
I looked at these back in 2020 or 2021 when interest rates were low. They looked attractive because CD rates were so low. In the end, I decided not to do it. I was kind of spooked by the fact that it was an insurance product. I didn't end up buying them. Hindsight it was the right choice. Money markets are now paying more than those would be paying.
You made an educated guess back in 2020-2021 and came out on the good side. But, what about now when rates are juicy? I truly believe this is the time to lock in MYGA rates if they fit in your financial plan. Everyone is different.
On the interest risk, is it not the exact same risk as buying a bond? If you sell a bond in a higher interest rate environment, the amount you receive could be lower than what you pay for the bond. If you keep it to maturity, then you do not receive the higher interest rate. Looks exactly the same than MYGA. As of CD, there would be a lower penalty but still a penalty: you might forfeit a few months of interests and the opportunity cost of getting higher return while you were still in the CD and not getting any interest due to the penalty.
I'm retired and like the income of MYGA's. I always buy the A or A+ rated for 5 years. I waited until rates peaked and then bought. Did the same with the stock market, waiting till market dropped and bought. Patience is a virtue that worked for me. Never rebalance like John Bogle said and yes you can time the market.
Personally I like MYGAs for long term savings or buffer monies that may never be spent. I look on it as a bond that cannot be called or crash in value.
One point to add about CD's and penalties is the 6 month loss of interest applies to if you bought them directly through the bank. If you buy them through a broker, like Fidelity, cashing out early is handled differently, and at least the one time in my situation, I lost maybe $1.15 in interest when I had to sell early. It can be (but not always) more advantageous to buy from the broker.
For almost everyone, it’s best to keep things simple-low-cost stock and bond index mutual funds/ETFs. Few folks fully understand the risks and nuances of annuities.
One other thing that people really need to understand if they purchase these with non-qualified monies (eg savings/brokerage funds), while they are tax deferred vehicles (interest earned is not taxed until withdrawn), they also present a potential issue for people under 59 1/2 should they decide at the end of the guarantee period to withdraw the money. They not only have to pay income tax on the interest earned (full amount of interest), but also pay the 10% under 59 1/2 penalty. This to me is a 'dirty little secret' that isn't clearly understood by many. So if you are younger, this is not 'like a CD' because of these issues (CD's issue interest monthly, quarterly, or annually and you include that interest income in your taxable income total per year when received).
Every person needs to understand they are responsible for being informed about what they are investing in. Because one person does not do their homework doesn't make a certain investment product bad. Ignorance is very bad when making important investment decisions.
An aspect of MYGAs (Annuities in general) which was not mentioned is they can (should ?) be viewed as an alternative to / for your BOND allocation One can secure safe, guaranteed returns in the 3 ~ 6% range over / up to 10 years ~ if a number of policies are structured in a ladder form, they can be the source of income (as they mature -or- taking the partial, allowed withdrawal) while leaving one's stock market investments alone One forgoes the opportunity to "rebalance" their portfolio, but with the guarantees afforded by the annuity products, one is able to not worry about the volatility in the markets ... And provides protection from the times bonds -and- stocks fall at the same time (last seen a few years ago, but has happened more often throughout history than people realize) It is not an either / or proposition, it is a diversification opportunity ...
If your gonna do any longer term bonds CDs MYGA. Your on the right side of the curve, best opportunity since 2008. When the Fed tells you what they will do believe them.
Like all annuities a MYGA is an insurance product with huge surrender fees. I suppose any portfolio might benefit from having a small portion in a MYGA for core expense protection but there are many far more flexible ways to achieve the same protection.
Basically this is just another form of bond. But, instead of being sold by the gov., a bank, or a corp., it's being sold by an insurance co. The only difference seems to be it growing tax free as long as you don't touch it. Almost like bonds or CDs in an IRA...but you can presumably do it in a regular brokerage account. So you get an extra .5-1%t in interest rates for this illiquid investment. What do they say about chasing yield?! BTW, you wouldn't look at YOUR state law/insurance guarantee association (14:00), you'd look at the state guarantee association in the state where the insurer is registered. They're the ones who handle their insolvent ins. companies.
Not true about who handles the default.. it is the state you Live in , doesn't matter where the insurance company is located because they are licensed in your state. IF you move after buying a myga.. the new state assumes the handling of a defaulted myga. It is always about the state you are living in.
I agree with all you said however you didn’t cover the interest monthly only option Many retired people use that option to protect principal Especially those in their 80s
I actually have purchased 3 MYGA's from Stan. I was impressed when the call came for the appointment, on time and it was actually Stan on the phone. The process went smoothly and I was able to get. A/A+ companies and only bought MYGA's with the ability to take out 10% a year ( after year one) without penalty and interest comes out as you choose after the first year. So at the end, I am sitting close to 6% for 8 years ( I did spread the 3 between companies to be safe) but it is a roll of the dice. I could have put my bond money ( and that is how I am treating this as my fixed income) into stocks, it's not the 1970's after all. Love Rob and great video and thanks to his other videos did all the homework he discussed and made the call.
@@tedosmond413 I believe you can only sell a CD early if it's a brokered CD purchased thru Schwab, Fidelity, etc. Never saw one you could exit early purchased from a bank wthout paying a penalty.
That’s why they call it a contract do your homework. Make sure it’s right for you. Anything you put your money into can go up and down if you can get 5% fixed with the way interest rates have been for the last 25 years I don’t know why you’re talking it down, you just don’t like annuities that’s obvious
Why are the rates for deferred fixed annuities on Fidelity paying less than the two sites you showed? It's the best rating of the ins co that lowered the interest rate - right?
Thanks Rob! I had a variable annuity (IRA) through my retirement plan for five years and loved it. The fees were higher than I wanted but I received 4 1/4% each year. I also received a raise every year, except one, which amount to roughly $100 dollars more a month when I cashed out. In addition, when I cashed out I received more money than I put in. The reason for cashing out annuity was that I turned 65 and I wanted my wife on it which would have been a higher rate. Unfortunately, my retirement plan changed and the company stopped offering the annuity. I will check out an annuity at new plan once interest rates drop. It doesn't make sense now when you can earn same amount with little to no fees and minimal risk.
Stan the Annuity Man is great. I learned from him that buying an Annuity is just an exercise of shifting the risk of investing the money from you to an insurance company.
@@rickb2537 a MYGA is definitely a annuity But it's not what Stan the annuity man is talking about with shifting the risk He is talking about using a single premium immediate annuity instead of something like 4% plus inflation (Trinity Study)
Stan is an acquired taste. Years ago he was as sure than with limited strategy. Has sense brodened his view. Bought $500k of insurance products, never from Stan.
Holding periods are 1-10 years. How is one year too long? Don't buy a MYGA if you think you'll need the money before it matures. These are for reasonably financially stable investors.
They have worked for me. I only buy what I understand. Fixed Lifetime SPIAs that were first used in the Roman Empire. MYGAs for 10-years to drain Inherited IRAs under the new SECURE Act 2.0 rules. Etc.
Watch out for scammers. I will never contact you, ask you to buy anything from me, or offer to invest your money. And I certainly won't be trying to sell you an annuity!
On annuities - when you have a pension plan through your job, is that in effect the same as an annuity?
I have a question for you but maybe you have already covered this in some other video. I searched but could not find it as a topic. Also, I couldn't find the email for asking questions that you had mentioned in past vids.
So have you covered quantum easing (the hidden inflation) and how that impacts our retirement goals. I know they say inflation has only been 4 or maybe 5% but seriously milk and bread have gone up more than 2.5x in the last couple of years.
I hope this ages well, I'm no longer confident in my strategy following the recent happenings. I'm approaching retirement with comfortable millions. How do you advise i protect my cash reserve?
Many overlook that banks are return-driven businesses. I don't trust keeping a large sum in a bank. Instead, I invest with guidance, enjoy the benefits, than save for retirement.
Agreed. It's always wise to be proactive and consider diversifying our investments to manage risks in uncertain economic times. I delegate my day-to-day investing to an advisor ever since suffering a major steep-down late 2019, amid rona-outbreak, and as of today, I'm semi-retired with barely 25% short of my $1m retirement goal after subsequent investments
I'm intrigued by this. I've searched for financial advisors online but it's kind of hard to get in touch with one. Okay if I ask you for a recommendation?
Carol Vivian Constable is the licensed coach I use. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.
Thank you for doing my initial research into MYGAs! My financial consultant at Fidelity suggested it when I brought up the exorbitant amount of taxes I'm paying due to a large amount of cash, dividend paying stocks and an inherited IRA. While taking into consideration my own investments, cash I built up to buy a vacation home and still working, from a tax deferred standpoint, a short term annuity seemed appealing until I retire in a year or two. Something I'm considering.
This is an excellent, well balanced video. I agree that Blueprint Income is an excellent source of product information.
Love The Haircut analogy 👌
Buffett
Good summary by Rob. I purchased a MYGA for the first time a few months ago from an A+ rated insurer and the interest rate was much higher than CDs or Treasuries after reviewing several sources. I will not need these funds for years and I can withdraw interest penalty free. I wanted to lock in a higher interest rates before the Fed started rate cuts and I wanted to defer taxes. While interest rates could go up again I think there is a better chance of rates staying below these levels for years to come and I am completely happy with the rate I received. CDs and Treasuries rates have already decreased in the last 8 weeks. I would not consider a MYGA with below A+ rating. There is a good bogleheads MYGA page with lots of good Q&As also.
Can you share what company you went with your MYCA?
Did it. Would never do it again. Not even close to equivalent to a CD in numerous ways. But if you must, only at minimum 1% more premium than same term CD for all the cons involved. As Bob said also, tax deferred, at maturity can 1035-exchange to another MYGA etc, but do have an exit strategy because there will be an onerous tax hit at possibly the worst time when you do exit.
Totally depends on your financial situation. We want to defer taxes to when we're in a lower tax bracket. Don't need the money at this time. Personally, I don't find many negatives if you aren't in a situation where you might need the money in the near future. Plus, our contract allows a 10% free withdrawal per year. Not sure what kind of financial problem situation you found yourself in. It's true they are not for everyone. But, for those who could benefit, I'd certainly recomment at least taking a look at them.
I do this with (some of my) Roth dollars, mitigating sequence of return risk, and enjoying Roth tax treatment for both rollovers in and rollovers out. After I hit retirement, I will rollover out the Roth MYGAs into a high equity portfolio to seed my tax-free withdrawals (SWR 2.5-3.0%, we will see). I simply could not resist a nearly risk-free nominal ~6% annual yield when the expected nominal total return of my desired investment portfolio is between 6-7% (with all the market and sequence risk that implies).
Avoid companies that also write property and casualty insurance policies. Ideally, pick a company that only does life insurance and annuities - virtually no risk of failure. In any case, failure is usually handled by a different company taking over the policies, not payment from the state guarantee fund.
I already own shares of NVDA, PALANTIR, TSLA, and APPL as well. Sure, I don't mind having these equities sit around for a while, but I'd also like to appreciate short-term opportunities that could fetch $300,000
hey rob, one piece of feedback, consider zooming in a little on some of these webpages for people who arent full screen or are on a smaller device. Cheers
edit: you totally did it a bit in this video. thanks
A MYGA is also helpful if you want to keep your MAGI low in order to qualify for or increase your ACA subsidy.
I'm in the second year of a 7-year MYGA earning 5.57% with an A+ rated insurance company. Since you can defer paying taxes until maturity, it fit our financial plan because we will be in a lower tax bracket at that time with no one employed. Additionally, I like that you can also choose to rollover the entire amount into another annuity and further delay paying tax on the interest. If you choose, you can also annuitize the balance for an income stream. Lots of choices. More flexibility.
At the end of the 7 years can you take a lump sum payment? (original principal plus the interest)
@@tedosmond413 Yes
5.57% is great! Can you share who it is with? I want a MYGA like that!
@@Andluth Rates have changed since I purchased it in 1/23. It was offered by Athene Life Insurance only using select big banks. I went with Wells Fargo.
@@tedosmond413 ... Yes. You can take a certain amount out along the way (depends on the carrier), or if you choose you can take it all in lump sum with return of principal at the end of the contract term.
I have two 10-year MYGAs for two Inherited IRAs under the SECURE Act 2.0. (And 4 other Fixed Lifetime SPIAs.) I bought them over time, so some are higher rates and some are lower. But I have no market risk, no longevity risk, and payments will last for 10-years/life, respectively. I'm investing the "extra" income back into the S&P 500 for the next annuity on the ladder.
I inherited several annuities from my mother. She had one annuity that had been sold from one insurance company to the next. My question would be, is there no way to ensure the annuity with an A+ company wont be sold to a company with a B rating? “Annuities may move from one provider to another if the company chooses to sell off its annuity contracts.”
This video was SUPER well done. You explained it perfectly. Typically, MYGAs will have higher rates, but high surrender fees, so make sure you know you won't need the money. You explained the interest rate / reinvestment risk well. They can be great tools, but it might not be suitable to your individual situation. One thing to note - the comission rate isn't necessarily a "fee" on the product. The insurance company will pay that, and there may be a correlation to the rates offered, but it's not a fee. Many indexed annuitites have $0 in fees, even if they do have a higher comisison rate. Typically, annuities don't have fees for accumulation focused products (MYGA, FIA, Fixed), but do have fees if they provide some other guarantee (death benefit rider, guaranteed income rider, etc).
It is a fee. Just because it's not paid directly, it is still taken from the account.
@@dougprw1110 no, it's not
@dougprw1110 how? If you deposit 100k, and still have 100k in the account, how is that taken from the account?
Good video I didn’t know what a MYGA was thanks.
It’s good to see a video a little more often 👍🏻👍🏻
Thanks for taking the time to provide this info, Rob. I always enjoy your videos.
Good video. I prefer AAA rated Agency bonds. Just got one yesterday at 6%. No state tax. Callable in 1 year which meets my timeline and if not called I am happy with 6%.
Where can I find these types of bonds? (I do have a Schwab acct)
I agree with this option, Gov’t agency bonds. Higher interest than CD, but could be sold on the open market if you need the money. Also, most have quarterly payments. Not sure about the tax implications
On Schwab if you go to trade then bonds you will see agency bonds in the 4th column after CDs, treasuries and zero coupon bonds. Click on the duration you want. Once at the next screen you can modify search by date, minimum yield etc
Bought a 3,4 and 6 year all paying 4.75 except 6 year at 4.2% A+ ratings We can take out 10% a year penalty free . They compound interest daily. CD's do not compound. These are not callable also unlike some CD's
I mixed a CD ladder with these instruments to define our fixed income allocation in the portfolio
Brokered CDs do not compound, direct from bank CDs do compound.
@@Bill-vk7fh news to me?
When I looked, MYGAs from top rated companies (A & above) were not much more than you could get from an FDIC bank CD. One fear I have is that there is some hidden away gotcha in the MYGA contract---insurance companies are notorious for hiding important facts.
The contracts are fairly simple to read. MYGAs are pretty much plain vanilla investments. Most salespeople don't like them because they don't make as much on them. I found NO gotchas in our contract. And, I like making about $63/day. You MUST carefully read your contract to make sure you understand everything in it. Just be comfortable that it fits into your investment strategy. It's only one piece of the puzzle.
I looked at these back in 2020 or 2021 when interest rates were low. They looked attractive because CD rates were so low. In the end, I decided not to do it. I was kind of spooked by the fact that it was an insurance product. I didn't end up buying them. Hindsight it was the right choice. Money markets are now paying more than those would be paying.
You made an educated guess back in 2020-2021 and came out on the good side. But, what about now when rates are juicy? I truly believe this is the time to lock in MYGA rates if they fit in your financial plan. Everyone is different.
Yes for 1 or 2% it's not worth the trouble.
Interesting. Kudos on sharing this information.
On the interest risk, is it not the exact same risk as buying a bond? If you sell a bond in a higher interest rate environment, the amount you receive could be lower than what you pay for the bond. If you keep it to maturity, then you do not receive the higher interest rate. Looks exactly the same than MYGA. As of CD, there would be a lower penalty but still a penalty: you might forfeit a few months of interests and the opportunity cost of getting higher return while you were still in the CD and not getting any interest due to the penalty.
I'm retired and like the income of MYGA's. I always buy the A or A+ rated for 5 years. I waited until rates peaked and then bought. Did the same with the stock market, waiting till market dropped and bought. Patience is a virtue that worked for me. Never rebalance like John Bogle said and yes you can time the market.
Personally I like MYGAs for long term savings or buffer monies that may never be spent. I look on it as a bond that cannot be called or crash in value.
I have a 3 yr MYGA paying 5.45 with 10% free withdraw and can cash in in 3 hrs with no penalty
Would you mind sharing the company' name?
One point to add about CD's and penalties is the 6 month loss of interest applies to if you bought them directly through the bank. If you buy them through a broker, like Fidelity, cashing out early is handled differently, and at least the one time in my situation, I lost maybe $1.15 in interest when I had to sell early. It can be (but not always) more advantageous to buy from the broker.
Yes, only buy brokered CDs. Good post.
For almost everyone, it’s best to keep things simple-low-cost stock and bond index mutual funds/ETFs. Few folks fully understand the risks and nuances of annuities.
SPIAs are simple. Since the Roman Empire to today, I give you a lump sum, you give me a stream of income.
@@Patrick-iq1do Agreed, but not on-topic. Plus, still have counterparty and interest-rate risk.
One other thing that people really need to understand if they purchase these with non-qualified monies (eg savings/brokerage funds), while they are tax deferred vehicles (interest earned is not taxed until withdrawn), they also present a potential issue for people under 59 1/2 should they decide at the end of the guarantee period to withdraw the money. They not only have to pay income tax on the interest earned (full amount of interest), but also pay the 10% under 59 1/2 penalty. This to me is a 'dirty little secret' that isn't clearly understood by many. So if you are younger, this is not 'like a CD' because of these issues (CD's issue interest monthly, quarterly, or annually and you include that interest income in your taxable income total per year when received).
Every person needs to understand they are responsible for being informed about what they are investing in. Because one person does not do their homework doesn't make a certain investment product bad. Ignorance is very bad when making important investment decisions.
They are good for Inherited IRAs, where the penalty doesn't apply. (Otherwise, the SEPP exception to the penalty is an option for lifetime Annuities.)
Rob covered the 10% penalty
An aspect of MYGAs (Annuities in general) which was not mentioned is they can (should ?) be viewed as an alternative to / for your BOND allocation
One can secure safe, guaranteed returns in the 3 ~ 6% range over / up to 10 years ~ if a number of policies are structured in a ladder form, they can be the source of income (as they mature -or- taking the partial, allowed withdrawal) while leaving one's stock market investments alone
One forgoes the opportunity to "rebalance" their portfolio, but with the guarantees afforded by the annuity products, one is able to not worry about the volatility in the markets ...
And provides protection from the times bonds -and- stocks fall at the same time (last seen a few years ago, but has happened more often throughout history than people realize)
It is not an either / or proposition, it is a diversification opportunity ...
If your gonna do any longer term bonds CDs MYGA. Your on the right side of the curve, best opportunity since 2008. When the Fed tells you what they will do believe them.
Like all annuities a MYGA is an insurance product with huge surrender fees. I suppose any portfolio might benefit from having a small portion in a MYGA for core expense protection but there are many far more flexible ways to achieve the same protection.
Basically this is just another form of bond. But, instead of being sold by the gov., a bank, or a corp., it's being sold by an insurance co. The only difference seems to be it growing tax free as long as you don't touch it. Almost like bonds or CDs in an IRA...but you can presumably do it in a regular brokerage account. So you get an extra .5-1%t in interest rates for this illiquid investment. What do they say about chasing yield?! BTW, you wouldn't look at YOUR state law/insurance guarantee association (14:00), you'd look at the state guarantee association in the state where the insurer is registered. They're the ones who handle their insolvent ins. companies.
Not true about who handles the default.. it is the state you Live in , doesn't matter where the insurance company is located because they are licensed in your state. IF you move after buying a myga.. the new state assumes the handling of a defaulted myga. It is always about the state you are living in.
I agree with all you said however you didn’t cover the interest monthly only option
Many retired people use that option to protect principal
Especially those in their 80s
I actually have purchased 3 MYGA's from Stan. I was impressed when the call came for the appointment, on time and it was actually Stan on the phone. The process went smoothly and I was able to get. A/A+ companies and only bought MYGA's with the ability to take out 10% a year ( after year one) without penalty and interest comes out as you choose after the first year. So at the end, I am sitting close to 6% for 8 years ( I did spread the 3 between companies to be safe) but it is a roll of the dice. I could have put my bond money ( and that is how I am treating this as my fixed income) into stocks, it's not the 1970's after all. Love Rob and great video and thanks to his other videos did all the homework he discussed and made the call.
I understood the interest rate risk you described, but how is that any different for a MYGA than a CD of equivalent term?
I think because a CD you can sell and then reinvest in a new CD at higher rates...vs MYGA which you are locked into via high withdrawal penalties.
@@tedosmond413 I believe you can only sell a CD early if it's a brokered CD purchased thru Schwab, Fidelity, etc. Never saw one you could exit early purchased from a bank wthout paying a penalty.
For me no longer than 6 yrs at a time. Money I do not need. Laddered. A- or better for 4+ yrs And B++ for 3 or less.
That’s why they call it a contract do your homework. Make sure it’s right for you. Anything you put your money into can go up and down if you can get 5% fixed with the way interest rates have been for the last 25 years I don’t know why you’re talking it down, you just don’t like annuities that’s obvious
Big difference being stuck with a 2.5% MYGA and a 5.5% MYGA
In your 5-year FIA, are earnings taxed as ordinary income or long term capital gains at maturity?
Why are the rates for deferred fixed annuities on Fidelity paying less than the two sites you showed? It's the best rating of the ins co that lowered the interest rate - right?
Is a MYGA considered a Fixed Indexed Annuity?
State Farm was downgraded by AM Best last year. Longer the annuity, the higher the rating to start.
Thanks Rob! I had a variable annuity (IRA) through my retirement plan for five years and loved it. The fees were higher than I wanted but I received 4 1/4% each year. I also received a raise every year, except one, which amount to roughly $100 dollars more a month when I cashed out. In addition, when I cashed out I received more money than I put in. The reason for cashing out annuity was that I turned 65 and I wanted my wife on it which would have been a higher rate. Unfortunately, my retirement plan changed and the company stopped offering the annuity. I will check out an annuity at new plan once interest rates drop. It doesn't make sense now when you can earn same amount with little to no fees and minimal risk.
Stan the Annuity Man is great. I learned from him that buying an Annuity is just an exercise of shifting the risk of investing the money from you to an insurance company.
That annuity is not a MYGA
You are talking about single premium immediate annuity or deferred single premium immediate annuity
@@johngill2853 All annuities are a way to shift investment risk to an insurance company, not just income paying annuities.
A MYGA ( Multi Year Guarantee Annuity) is certainly an annuity.
@@rickb2537 a MYGA is definitely a annuity
But it's not what Stan the annuity man is talking about with shifting the risk
He is talking about using a single premium immediate annuity instead of something like 4% plus inflation (Trinity Study)
Stan is an acquired taste. Years ago he was as sure than with limited strategy. Has sense brodened his view. Bought $500k of insurance products, never from Stan.
Multi-Year Guaranteed Annuities (MYGA) are not as good due to liquidity issue and long holding period
Blanket statement does not apply to everyone in all situations.
Holding periods are 1-10 years. How is one year too long? Don't buy a MYGA if you think you'll need the money before it matures. These are for reasonably financially stable investors.
Lol good luck with that fdic insurance,,ask the people from yhe 2010 fallout where the fdic was for them
🤘
I would like to make a comment but Robs people delete my comments
If your time horizon is five years you might as well by an index fund.
You buy an MYGA annuity for the GUARANTEE!!!!!!!!!!!!!!!!!!!!! You dont' get that with an index fund.
weird title. insurance products are NOT investments. they *are* financial instruments, but not investments.
To me, anything that earns money is an investment.
Not sure why you're making that distinction.
According to ppl. Who are familiar with annuity are TERRIBLE noo matter what they name it
They have worked for me. I only buy what I understand. Fixed Lifetime SPIAs that were first used in the Roman Empire. MYGAs for 10-years to drain Inherited IRAs under the new SECURE Act 2.0 rules. Etc.
Low information investor! Good luck.
@rob_berger you gotta make the screen bigger my guy if you want us to follow along, couldn't really read much of what you were referring to