Hand outstretched as money falls into it

Looking for a smarter way to maximize your retirement savings? Because interest rates are currently high, now is a great time to take advantage of a strategy called “laddering” with MYGAs – multi-year guaranteed annuities.

I’ll explain what all this means, but in a nutshell, it’s a strategy you can use to earn extra interest on money for retirement while keeping as much as possible liquid and accessible in case you need it. It’s the best of both worlds – guaranteed gains and zero risk of market losses!

➡️ Rather talk to a real person about how to maximize your retirement savings? I’m here to help! Click the button below to schedule a call and let me give you personalized, one-on-one help.

Schedule a Call

But First: What Are Annuities?

Annuities are a financial product designed to help people save for and create an income stream during retirement. They’re a contract between you and the insurance company. Here’s how it works: you pay into the annuity (all at once or over time), your insurer pays interest on that money, and when it’s time to retire, you either get all your cash back (with interest) or annuitize that cash and start getting a monthly check until the day you pass away. It’s retirement income you can’t outlive!

There are multiple types of annuities:

Hand holding a calculator over financial charts and graphs
  • Fixed annuities. These have a guaranteed interest rate that lasts the length of your annuity contract. Predictable gains make fixed annuities safe, steady, and dependable. MYGAs are a type of fixed annuity – the most popular annuity on the market right now, thanks to high interest rates.
  • Fixed index annuities. Tie your interest rate percentage to the performance of a market index (like the S&P 500). If it does well, you earn more interest. If it does poorly, you earn less or possibly zero interest.
  • Variable annuities. Your money gets invested in subaccounts with different investments that offer varying returns. This means your annuity payments will also vary. Variable annuities are the least stable in terms of creating a budget during retirement, and usually not recommended for most of my clients.

The annuity I’m most excited about right now is a MYGA, thanks to that guaranteed interest rate. Since rates are high, you have a chance to lock in a rate between 5% and 6% for as many as 10 years – that’s a great return for doing nothing but waiting! MYGAs have two characteristics to look for: a term length and an interest rate. I’ll explain how to use those to your advantage below.

➡️ Rather talk to a real person about how to maximize your retirement savings? That’s why I’m here! Click the button below to schedule a call and let me give you personalized, one-on-one help.

Schedule a Call

How to Get the Most Out of MYGAs When Interest Rates Are High

I’ve been recommending a strategy called “laddering” for clients who aren’t ready to retire yet, but want to maximize a portion of their savings during these high-interest-rate times. It involves taking the total amount you want to put into an annuity, and spreading that amount out between several different MYGAs to ensure you have high interest rates and continuing liquidity, in case you need some of that money in the meantime.

I recommend this strategy if you’re within about 10 years of retirement and have a chunk of money sitting in a low-yield vehicle like a savings account or CD. If you don’t need this money to live right now, and you’re not wild about the idea of putting it into a volatile stock market, I can help you maximize it with multiple MYGAs.

The strategy? Here’s how it works.

Diagram of brain made out of thread, tied to a roll of hundred dollar bills, symbolizing a smart way to get more money
  • We compare term lengths and rates to find the highest-yield MYGAs available.
  • Next, we calculate how much of your current savings you might want access to in the next 10 years. Because most insurers let you access up to 10% of your total contract value per year, we can arrange it so that you always have a portion of that cash available.
  • Finally, we spread the amount you want to put into an annuity across multiple MYGAs, with term lengths ranging from 3-10 years.
  • As each MYGA expires, you get to choose how to proceed – renew your contract with the insurer (at a current interest rate), withdraw the cash (plus interest earnings), or roll your cash and earnings into a different annuity at a different provider. This keeps some money locked up, earning a high rate of interest, while other money becomes available to you on a scheduled, predictable basis, after earning similarly high interest rates.

Best of all, most annuities have no fees. As long as you leave your money in for the full length of the term, you won’t pay any surrender fees, either. It’s a simple, easy process: buy the annuity, earn interest, wait out the term, and collect/annuitize/renew/roll over at the end of the term.

➡️ Rather talk to a real person about MYGAs? That’s why I’m here! Click the button below to schedule a call and let me give you personalized, one-on-one help.

Schedule a Call

Sample MYGA Gains

Let’s say you have $75,000 sitting in a savings account, earning almost zero interest. If you don’t need that money to live on, and you don’t want to put it in the stock market, here’s what laddering MYGAs can do for you right now.

Stacks of coins lined up in increasing order of size, symbolizing growth

Start with: $75,000

10-year EquiTrust MYGA (Certainty Select 10) at 6%: add $40,000
In 10 years: $71,633.91

7-year Nassau Life MYGA (MYAnnuity) at 6%: add $20,000
In 6 years: $28,370.38

3-year Americo Financial MYGA (Platinum Assure Series 4) at 5.85%: add $15,000
In 4 years: $17,789.50

Total contract value purchased: $75,000
Total ending value, 10 years later: $117,793.79
ROI: 57%

That’s a good ROI for money that was just sitting there, unused.

So…what’s the downside? You would owe income tax on your interest earnings when you withdraw them. But you don’t have to withdraw them, at least not all of them and not right away. You could renew your contract, roll the sum total into another annuity, or start taking distributions rather than withdrawing the whole amount. When you begin taking distributions, you only owe income tax on the amount of interest earnings you were paid out that year. That’s one way to spread out the tax liability, especially handy if you’re already at or near retirement when your term ends.

Happy senior woman meeting with her financial advisor to talk about annuities

➡️ There’s a lot of potential here if you’re within 10 years of retirement! Let’s find out how much MYGAs can do for you in the meantime. Click the button below to schedule a call and let me give you personalized, one-on-one help.

Schedule a Call

Compounding interest calculated with Investor.gov’s compound interest calculator. Annuity interest rates valid as of 11/29/23.

Always consult your accounting, legal, and tax advisors before implementing any recommendations. This material does not constitute tax, legal, or accounting advice.