MYGA - cash allocation

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spartyfanaa
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MYGA - cash allocation

Post by spartyfanaa »

Hello -

I have a question about potentially investing in a 3 year MYGA. Details below.

- Age: 54/DW 54
- Retired - DW works part time
- Approximately 3.2% withdrawal rate / 60/40 AA
- Have approximately 5-6 years of expenses in cash/cash equivalents (eg: I bonds, Toyota DN, Money Market)

Question:
Rather than holding this much in cash/cash equivalent instruments, I am considering investing in a 3 year MYGA that pays a bit over 4% with an AM Best rating of A-. I don't anticipate needing this money and have ample cash to tap in the event of an emergency/unexpected event. I recognize the investment is not FDIC insured, but I believe they are state protections in place up to $250k.

Any additional considerations/options/thoughts are appreciated.
dbr
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Re: MYGA - cash allocation

Post by dbr »

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goodenyou
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Re: MYGA - cash allocation

Post by goodenyou »

Not sure where you are finding 3 year MYGA paying over 4%. AMEX brokered FDIC CDs are paying 3.10. NYL (A++) is @3.35 for a 3-year. MYGA rates are sure on the rise as interest rates are rising (and bonds and the Market are tanking).
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retireIn2020
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Re: MYGA - cash allocation

Post by retireIn2020 »

Oceanview is A-, they have a 6-year MYGA at 4.3% it also lets you withdraw after the 1st year. Seems like a good deal to me, I'm planning on moving some money from my stable value fund in 401k, that fund is only around 2%.
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Stinky
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Re: MYGA - cash allocation

Post by Stinky »

spartyfanaa wrote: Tue May 24, 2022 9:08 am Hello -

I have a question about potentially investing in a 3 year MYGA. Details below.

- Age: 54/DW 54
- Retired - DW works part time
- Approximately 3.2% withdrawal rate / 60/40 AA
- Have approximately 5-6 years of expenses in cash/cash equivalents (eg: I bonds, Toyota DN, Money Market)

Question:
Rather than holding this much in cash/cash equivalent instruments, I am considering investing in a 3 year MYGA that pays a bit over 4% with an AM Best rating of A-. I don't anticipate needing this money and have ample cash to tap in the event of an emergency/unexpected event. I recognize the investment is not FDIC insured, but I believe they are state protections in place up to $250k.

Any additional considerations/options/thoughts are appreciated.
I haven’t seen an A- company paying more than 4% on a three year MYGA. Might you be thinking of annuities sold through Canvas, which has a rating of B++ and a rate of 4.30%.

A couple of considerations.

—- First, be aware of the surrender charges and market value adjustment provisions if you need the money before the three years are up.

—- Second, be aware that withdrawals of interest from a taxable annuity before age 59.5 incur a 10% tax penalty. So, if you withdraw from the MYGA at the end of 3 years, when you are 57, your effective interest rate including the 10% penalty would be 3.60% instead of 4%. And, you’ll owe regular income tax on the interest.
You can avoid the 10% penalty if you defer the withdrawal to 59.5. In your case, at age 54, you could either buy a longer term MYGA now, or plan to do an exchange into another annuity when the initial 3 year term expires.

Post back with questions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
spartyfanaa
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Re: MYGA - cash allocation

Post by spartyfanaa »

Thanks for the responses.

@ Stinky - You are correct. I was thinking about the 3 year MYGA through Canvas. Regarding the 2nd point in your reply, I assumed that once the term of the 3 year MYGA is completed, the principal and interest get returned to the investor and tax is deferred until that time. It appears that's not accurate? I guess I am not clear on how it works at the end of the annuity (3 years) if I'm not 59.5?, assuming I don't roll the investment into another annuity. It appears the interest cannot be paid to the annuity holder without a 10% penalty if the recipient is not 59.5?

This is my first potential investment in a MYGA so I appreciate the education/feedback.
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Stinky
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Re: MYGA - cash allocation

Post by Stinky »

spartyfanaa wrote: Tue May 24, 2022 1:06 pm Thanks for the responses.

@ Stinky - You are correct. I was thinking about the 3 year MYGA through Canvas. Regarding the 2nd point in your reply, I assumed that once the term of the 3 year MYGA is completed, the principal and interest get returned to the investor and tax is deferred until that time. It appears that's not accurate? I guess I am not clear on how it works at the end of the annuity (3 years) if I'm not 59.5?, assuming I don't roll the investment into another annuity. It appears the interest cannot be paid to the annuity holder without a 10% penalty if the recipient is not 59.5?

This is my first potential investment in a MYGA so I appreciate the education/feedback.
In 3 years, you can elect to receive the principal and interest. If you do that, you will owe income taxes on the earned interest, plus a 10% tax penalty on the interest earned.

If you’d like to avoid the 10% penalty, then you can either re-up with Canvas for another term (length of your choosing), or do a 1035 exchange into an annuity from another company, just so long as you push it out past your age 59.5. You’ll also be deferring the recognition of any taxable income until that successor annuity pays out. You can keep rolling the annuity forward as many times as you want, deferring taxes all the way. But, at death, there is no step up in basis, and your beneficiaries will end up ultimately paying tax on the annuity earnings.

Does that all make sense? Post back with questions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
GetSmarter
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Re: MYGA - cash allocation

Post by GetSmarter »

Stinky wrote: Tue May 24, 2022 12:28 pm
spartyfanaa wrote: Tue May 24, 2022 9:08 am Hello -

I have a question about potentially investing in a 3 year MYGA. Details below.

- Age: 54/DW 54
- Retired - DW works part time
- Approximately 3.2% withdrawal rate / 60/40 AA
- Have approximately 5-6 years of expenses in cash/cash equivalents (eg: I bonds, Toyota DN, Money Market)

Question:
Rather than holding this much in cash/cash equivalent instruments, I am considering investing in a 3 year MYGA that pays a bit over 4% with an AM Best rating of A-. I don't anticipate needing this money and have ample cash to tap in the event of an emergency/unexpected event. I recognize the investment is not FDIC insured, but I believe they are state protections in place up to $250k.

Any additional considerations/options/thoughts are appreciated.
I haven’t seen an A- company paying more than 4% on a three year MYGA. Might you be thinking of annuities sold through Canvas, which has a rating of B++ and a rate of 4.30%.

A couple of considerations.

—- First, be aware of the surrender charges and market value adjustment provisions if you need the money before the three years are up.

—- Second, be aware that withdrawals of interest from a taxable annuity before age 59.5 incur a 10% tax penalty. So, if you withdraw from the MYGA at the end of 3 years, when you are 57, your effective interest rate including the 10% penalty would be 3.60% instead of 4%. And, you’ll owe regular income tax on the interest.
You can avoid the 10% penalty if you defer the withdrawal to 59.5. In your case, at age 54, you could either buy a longer term MYGA now, or plan to do an exchange into another annuity when the initial 3 year term expires.

Post back with questions.
I wonder your thoughts on buying a MYGA through Fidelity, for simplicity in my case, as opposed to Blueprint or Canvas?
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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Stinky
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Re: MYGA - cash allocation

Post by Stinky »

GetSmarter wrote: Tue May 24, 2022 3:20 pm I wonder your thoughts on buying a MYGA through Fidelity, for simplicity in my case, as opposed to Blueprint or Canvas?
I believe that if you buy through Fidelity, the MYGAs you purchase through Fidelity show up on your consolidated Fidelity statement. (Someone who is with Fidelity can confirm this). On the other other hand, my brokerage is Vanguard, and the MYGAs I purchased through Blueprint and Canvas are reported separately.

The other big difference is selection of products. Blueprint carries products from several dozen companies; Fidelity has only a few highly rated companies; and Canvas sells for only one company (Puritan Life).
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HueyLD
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Re: MYGA - cash allocation

Post by HueyLD »

MYGAs purchased thru Fidelity will show up under “Other Holdings.”
GetSmarter
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Re: MYGA - cash allocation

Post by GetSmarter »

Stinky wrote: Tue May 24, 2022 3:32 pm
GetSmarter wrote: Tue May 24, 2022 3:20 pm I wonder your thoughts on buying a MYGA through Fidelity, for simplicity in my case, as opposed to Blueprint or Canvas?
I believe that if you buy through Fidelity, the MYGAs you purchase through Fidelity show up on your consolidated Fidelity statement. (Someone who is with Fidelity can confirm this). On the other other hand, my brokerage is Vanguard, and the MYGAs I purchased through Blueprint and Canvas are reported separately.

The other big difference is selection of products. Blueprint carries products from several dozen companies; Fidelity has only a few highly rated companies; and Canvas sells for only one company (Puritan Life).
Thanks for your thoughts
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
spartyfanaa
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Re: MYGA - cash allocation

Post by spartyfanaa »

@ Stinky - thanks for your additional comments. Makes sense now, and I'm glad you explained 10% tax penalty prior to age 59.5. Thank you.
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Re: MYGA - cash allocation

Post by bog007 »

Stan sent me an email saying
"The Fed tried to combat inflation this week with another rate increase. That's good news for people looking for higher contractual guaranteed annuity solutions, especially for MYGA Fixed Rates."
Don’t let anyone else ruin your portfolio. It’s your portfolio. Ruin it yourself!!!
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