MYGA vs CD - what would you choose?

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ARB57
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MYGA vs CD - what would you choose?

Post by ARB57 »

As interest rates plummet...I'm beginning to take a look at alternatives.

I'm struggling to choose between a 5-year CD (1.3%) and a 5 year MYGA (multi-year guaranteed annuity.) The MYGA is with an A+ rated insurance company and will pay 2.5%. The CD is NCUA insured; the annuity is guaranteed by the insurer with the state guarantee fund as a 'backstop' should the insurer become insolvent.

Taxes on the interest on the guaranteed annuity are deferred...taxes on the interest on the CD are not deferred. I guess there's one other difference, surrender charges on the annuity are significant should I need the money in than less than 5 years. But the amount of money that I'm looking to invest is less than 10% of my portfolio...so I will NOT need to withdraw the money early. What would you do? CD at 1.3...or MYGA at 2.5? Any additional considerations?

Thanks.
Last edited by ARB57 on Fri Sep 18, 2020 9:05 am, edited 1 time in total.
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JoMoney
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Re: Is the premium worth the risk?

Post by JoMoney »

Are you over 59.5? My understanding is that (with a few exceptions) it will have a penalty when the funds come out if you're under 59.5.

As a curiosity, have you looked to see what individual bonds of the insurance carrier are offering? They wouldn't have the backing of the guaranty association that the annuity would, but if they're out there, it might be something to look at and take into consideration with regard to how the bond market is pricing the 'risk' of that insurer.
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Stinky
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Re: Is the premium worth the risk?

Post by Stinky »

ARB57 wrote: Thu Sep 17, 2020 9:36 pm As interest rates plummet...I'm beginning to take a look at alternatives.

I'm struggling to choose between a 5-year CD (1.3%) and a 5 year MYGA (multi-year guaranteed annuity.) The MYGA is with an A+ rated insurance company and will pay 2.5%. The CD is NCUA insured; the annuity is guaranteed by the insurer with the state guarantee fund as a 'backstop' should the insurer become insolvent.

Taxes on the interest on the guaranteed annuity are deferred...taxes on the interest on the CD are not deferred. I guess there's one other difference, surrender charges on the annuity are significant should I need the money in than less than 5 years. But the amount of money that I'm looking to invest is less than 10% of my portfolio...so I will NOT need to withdraw the money early. What would you do? CD at 1.3...or MYGA at 2.5? Any additional considerations?

Thanks.
You’ve pretty well nailed the considerations.

So long as your invested amount is less than your state guaranty fund limits, and you won’t be taking out interest before you turn 59.5, I’d take the MYGA. (Full disclosure - I own several MYGAs).
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ARB57
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Re: Is the premium worth the risk?

Post by ARB57 »

Thanks for the feedback. I am over 59.5 now, so there's no penalty to worry about. Here's a link with some financial info about the Insurance Company in question. I'm not quite sure how to get the bond info that JoMoney asked about. Perhaps the link will help (and I'm hoping you can interpret it for me:) Thanks.

https://www.midlandnational.com/documen ... 6edbc0d066
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Stinky
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Re: Is the premium worth the risk?

Post by Stinky »

ARB57 wrote: Thu Sep 17, 2020 10:51 pm Thanks for the feedback. I am over 59.5 now, so there's no penalty to worry about. Here's a link with some financial info about the Insurance Company in question. I'm not quite sure how to get the bond info that JoMoney asked about. Perhaps the link will help (and I'm hoping you can interpret it for me:) Thanks.

https://www.midlandnational.com/documen ... 6edbc0d066
It is not typical for a life insurance company to issue debt, because any third-party debt doesn't count as "capital" for the purposes of insurance regulation. I expect that Midland National is the same way, so I doubt that you'll find any debt ratings for Midland National Life.

The insurance company is a subsidiary of Sammons Financial, which is a holding company. I do not know whether Sammons has any publicly traded debt.

One measure of the possible or "shadow" debt rating of Sammons is to look at the rating of Midland National from S&P, and then reduce it by two notches. Per the attached link, Midland National's "financial strength" is rated at A+ by S&P. That rating implies an S&P debt rating of A- on Sammons Financial, which is a solid investment-grade rating. (The reason for the two-step "notching" is that insurance companies are almost always considered stronger by the rating agencies than their parent companies, because of the extensive controls that state regulators can impose on the insurance companies.)

None of this would change my opinion of buying a MYGA from Midland National. In fact, I own a MYGA from North American Life, which is a sister company of Midland National and shares ownership by Sammons.

ARB57, finally, if you want to get more comments on this thread, you might want to change the thread title to something like "MYGA vs. CD - which would you choose?" You can change the entire thread title by "editing" the title of your first post in the thread. You can use the little "pencil" icon to edit your thread title.

Please post back if you have more questions.
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ARB57
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Re: MYGA vs CD - what would you choose?

Post by ARB57 »

Great feedback Stinky - thanks. Title has been edited.
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indexfundfan
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Re: MYGA vs CD - what would you choose?

Post by indexfundfan »

I have bought a few MYGAs in the past few months, 3-yr, 4-yr, 5-yr, mostly rated A- and A by AM Best. But I also bought a B++ rated 3-yr MYGA from Gainbridge. Gainbridge is interesting because everything is in electronic form, and the highest withdrawal penalty is "only" 3% (plus market value adjustments).

Regarding the state insurance guaranty, hopefully you are not in California, because they only provide a 90% guaranty.
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7eight9
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Re: MYGA vs CD - what would you choose?

Post by 7eight9 »

Another vote for the MYGA. To me they represent some of the best low-risk fixed income investments at the present time.
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Re: MYGA vs CD - what would you choose?

Post by Super Hans »

Thanks for the tip on Gainbridge. Their rates through Guggenheim look good, and the low minimum would make it easy for me to build a ladder with many rungs. I'm still not sure how to evaluate the B++ risk.

I've also been buying A/A- rated MYGAs lately through Blueprint Income. The A++ guys are paying more in line with bank CDs.
indexfundfan wrote: Fri Sep 18, 2020 9:16 am I have bought a few MYGAs in the past few months, 3-yr, 4-yr, 5-yr, mostly rated A- and A by AM Best. But I also bought a B++ rated 3-yr MYGA from Gainbridge. Gainbridge is interesting because everything is in electronic form, and the highest withdrawal penalty is "only" 3% (plus market value adjustments).

Regarding the state insurance guaranty, hopefully you are not in California, because they only provide a 90% guaranty.
capjak
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Re: MYGA vs CD - what would you choose?

Post by capjak »

I own MYGAs, 5 year a MOH A+ rating 2.65% not available now and Midland 7 year at 3.5%.

I was not aware they still had 2.5% on 5 year for A+ rated, I will have to look into that. There is an A- with 2.8% Oxford than I am thinking about.
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Re: MYGA vs CD - what would you choose?

Post by leftcoaster »

We bought a MYGA. A rated 3.2%. 5 years. In spouse’s name since she will be over the 59.5 threshold.
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Re: MYGA vs CD - what would you choose?

Post by JimmyJammy »

Looks interesting. I checked out Blueprint. Why are the rates on MYGAs in New York relatively terrible?
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Re: MYGA vs CD - what would you choose?

Post by Stinky »

JimmyJammy wrote: Sat Sep 19, 2020 11:02 pm Looks interesting. I checked out Blueprint. Why are the rates on MYGAs in New York relatively terrible?
New York's insurance regulations are much more strict than those in the rest of the country. Many companies, especially some of the smaller ones, choose to not write business in New York.

Your "relatively terrible" comment about MYGA rates available in New York also applies to other life and annuity products.
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Re: MYGA vs CD - what would you choose?

Post by JimmyJammy »

Good to know. Time to move. :)
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Re: MYGA vs CD - what would you choose?

Post by quisp65 »

I would love to jump on a MYGA but I'm in California where I'm only protected by 80% if the insurance company goes insolvent. I think I won't go MYGAs over CDs due to this but has anyone rationalized buying MYGAs in Cali? I'm wondering if Cali chose 80% due the frequent fires and this being hard on the insurance companies?
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Rudedog
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Re: MYGA vs CD - what would you choose?

Post by Rudedog »

I'm also looking at an MYGA through Gainbridge. So far, it looks good. I'd leave the money alone for 5 years. I'm over 60. I'm in Illinois so there is coverage up to $ 250,000 by Illinois Life and Health Insurance Guaranty Association. Has anyone else looked at Gainbridge, is there any downside I am missing. I have several CDs earning less than 1% that will be maturing this year and early next year. Thanks.
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Re: MYGA vs CD - what would you choose?

Post by indexfundfan »

Rudedog wrote: Sun Sep 20, 2020 9:27 am I'm also looking at an MYGA through Gainbridge. So far, it looks good. I'd leave the money alone for 5 years. I'm over 60. I'm in Illinois so there is coverage up to $ 250,000 by Illinois Life and Health Insurance Guaranty Association. Has anyone else looked at Gainbridge, is there any downside I am missing. I have several CDs earning less than 1% that will be maturing this year and early next year. Thanks.
I own one. The Gainbridge product only has a B++ rating. Personally I would like to keep to a shorter duration for a MYGA with a B++ rating
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