Interest rates are a major driver of annuity returns. Over the past few years, higher interest rates have allowed insurance companies to offer significantly stronger guarantees on multi-year guaranteed annuities, also known as MYGAs.
Today, we can lock in growth rates that were not available just a few years ago. That opportunity may not last.
In April, the current Federal Reserve Chairman is expected to step down, with a new Chairman awaiting Senate approval.
A change in leadership often brings a shift in policy. If interest rates are reduced, newly issued annuity contracts will reflect those lower rates.
Why Lower Interest Rates Might Be Coming
The Federal Reserve controls the federal funds rate, which influences borrowing costs and bond yields across the economy. Insurance companies rely heavily on bond markets to support annuity guarantees.
If the incoming Chairman lowers rates, the effect could trickle down to annuity products. Lower rates generally mean lower guaranteed returns for new buyers.
Once rates decline, new contracts will be priced accordingly.
That is why timing matters.
The Advantages of a MYGA
A multi-year guaranteed annuity is a contract issued by a life insurance company that guarantees a fixed rate of growth for a set period, typically three to seven years.
Current MYGA rates can exceed 5 percent, compared to much lower rates just a few years ago. In addition, growth inside a MYGA is tax-deferred. You do not pay taxes on the interest until you withdraw the funds.
Unlike variable annuities, which carry higher fees and market exposure, a MYGA provides predictable growth with no market volatility.
Many MYGA contracts also allow limited liquidity. After the first year, withdrawals of up to 10 percent annually are often available without penalty, offering flexibility while maintaining guarantees.
Consider Taking a Longer Term If You Can
MYGAs are available in various terms, commonly three, five, or seven years.
If you need full access to your funds soon, a shorter term may be appropriate. However, if your goal is steady growth and you do not anticipate needing more than the allowed withdrawal amount, a longer term may make sense.
A seven-year contract locks in today’s rate for the entire period. If interest rates decline after the Federal Reserve leadership change, your contract continues earning the higher locked-in rate.
If you are 50 years or older and looking for a conservative tool to protect a portion of your retirement savings, now may be an appropriate time to review your options rather than waiting to see what happens.
Securing Today’s Rates
Locking in today’s guarantees may be a prudent step for those seeking stability and predictable growth.
If you would like to understand how a MYGA could fit into your plan, I would be happy to walk you through the numbers and the terms.
Give us a call at 954-775-0275 to discuss your options.
Mario Bick
Mario Bick is the founder and President of Bick Insurance Consultants. As a former practicing attorney, Mario believes in representing his client first and foremost. His legal and financial background uniquely allows him to plan and communicate with other trusted advisors such as tax attorneys, estate planning attorneys, accountants, and human resource executives. As an independent agent, he is able to utilize the latest concepts and products in the industry to customize an insurance portfolio to meet the needs of every client.
