Any MYGA users here?

[disneysteve]

MYGAs (multi-year guaranteed annuities) come up pretty often over on the early retirement forum. People really seem to love them. They function fairly similarly to CDs except they're issued by insurance companies rather than banks. They don't have FDIC insurance but there are state guarantee programs and an independent rating system.

The big advantage is the interest rates. Right now, a 2-yr MYGA A-rated is paying 2.1%. The best CD rate for 2 years is about 1.35%. Three year MYGA is 2.65% vs. 1.4% for a CD. And 5-yr MYGA is 3.1% vs. 1.8% for a CD. Big differences.

When my cousin's estate gets closed, I'm thinking about using a chunk of that money to build a 5 year MYGA ladder so that beginning in 2 years we'll have one mature every year. Then we can take out the income each year to use toward our spending and roll over the principal into a new one.

[scfr]

We have one: 3 year term (we're 1-1/2 years in) at 2.1%. We got it as a CD alternative, although as you say it's not FDIC insured. At the time, we would have been looking at rates of 0.95-1.25% for a CD. 0.95% was the best rate we could have gotten at a CU where we were already members. 1.25% was the best rate we were eligible for (but would have had to open a new account and join an association with a $3 donation).

If my memory is correct, we could have gotten a slightly higher rate (no notes kept on this ... but maybe 0.1% better???) but we wanted to go with a company with a high rating for peace of mind.
I checked to make sure the issuer (insurance company) was a member in our state's guaranty association and knew the coverage limit. Still, I'd rather not have to deal with a bankrupt insurance company.

A couple points that might be of interest to you. Caveat: They're all different. These are things that apply to the one we got.

• taxes are deferred
• the "interest" earned can be withdrawn penalty-free any time. You mentioned rolling principal at maturity. If you had one like ours, you may not need a ladder? Just withdraw earnings when needed?? Go for a longer term and higher rate?
• Single owner only (joint not allowed). DH is the owner. If he dies, I have the option of continuing the original term, or taking a death benefit accumulation value
• Ours came with a 20+ page contract, so allow yourself some time to receive & read the paperwork. I read it all, took notes, asked any questions that hadn't been answered by the time I was done reading. Such as fascinating read! Overall, the process was longer than opening a CD.
• At "maturity" (end of the guarantee period) we can take a lump sum payout (that's the current plan), rollover for another 3 years (that will happen automatically if we don't instruct within 30 days), or take a payout option (I'm assuming that's what they'll try to sell us on). I have no idea if they send a notice before maturity the way banks/CUs do with CDs, so having a good calendaring system might be important

This one is a trial for us. If all goes well at "maturity" they very well could become a more important part of our portfolio in retirement.

[disneysteve]

Thanks scfr. Perhaps I'll do a trial like you. We have plenty of available cash on hand. I can buy one now for a 2-yr term to test out the waters. Rate is still better than a CD and with rates set to start rising, I don't want to get into longer terms right now anyway.