The US economy is slowing down, and to prevent a recession the Federal Reserve is anticipated to cut interest rates. Lower interest rates has unintended consequences to conservative investors, as the yields on fixed income investments drop. Ardent savers are scrambling to find the highest rates to deposit their net eggs to earn the maximum amount of interest. The typical go to products are US government bonds and bank CDs, but rates are collapsing quickly in both of these instruments. A MYGA, Multi-Year Guaranteed Annuity, is an investment often overlooked, but should warrant serious consideration.
A MYGA contains the word annuity, which is a turn off for some. But instead of focusing on the name of the product, lets focus on what it does.
- It is a fixed income product issued by an insurance company
- The interest rate paid by the insurer is fixed and guaranteed for a specified number of years
- The more attractive MYGA are issued by A to A+ rated insurance companies and pay an interest rate .8% higher that equivalent US government bonds and bank CDs
- The interest earned on the MYGA is not taxed every year when it is earned, it is taxed when the money is withdrawn from the annuity
When the MYGA term is over and if you choose to cash it in, at that point taxes are due. The compounding effect of delaying tax payments increases the effective rate of return. Over a five year period and depending upon your tax bracket this can result in a .25% higher interest rate. An alternative to cashing in, is to roll the proceeds into a new MYGA or other annuity product, and will continue to defer income taxes.
The annuity product space is broad and confusing. An annuity is not a specific product, but rather broad term that defines investment accounts that has preferential tax treatment. A MYGA allows investors to earn interest tax deferred. An annuity is extremely similar concept to a 401k, except there are no contribution limits for annuities.
Click on the video link below to watch our YOU TUBE channel, @TriathlonPartners to watch Triathlon TV: MYGA have the highest yields, not US bonds or CDs. Our goal is to engage, educate and empower our clients to make confident decisions that best fit their objectives. Triathlon Partners likes S.TU.F.F., Subcribers, Thumbs Up, Friends and Followers, clicking on those social media buttons are greatly appreciated.
Additional Resources
Tax-Apocalypse: Take Control of your Legacy
Triathlon TV: Indexed Universal Life Insurance vs Deferred Taxable Investment
Whole Life: The Devil is in the Details
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