What’s Ahead:
- Multi-Year Guaranteed Annuities (or MYGAs) are increasingly coming into demand.
- Competitive yields and a short duration can make them particularly useful as a fixed income alternative.
- Fee-based versions can help eliminate classic conflicts of interest concerns.
Annuities are back on the rise. The current environment is ripe considering the widely reported statistic that 10,000 Baby Boomers retire each day. The pandemic has only accelerated the trend of retiring early. In fact, Pew Research found that 28.6 million boomers were out of the workforce as of late 2020 – that’s 3.2 million more than just 12 months earlier. Certainly, health concerns played a role, but also consider that the stock market and real estate have been very strong in the last few years, 2022’s declines notwithstanding.
The COVID-19 Pandemic Caused A Surge In Retirements
Moreover, interest rates continue to move higher and this year’s stock market pessimism is worse than ever, according to sentiment data from The American Association of Individual Investors (AAII). Elevated inflation and geopolitical turmoil have investors seeking safety away from traditional stock and bond mutual funds.
Enter: MYGAS
A rapid intensification of retirement trends and fresh market uncertainty combine for a potential problem: Some risk-conscious investors need a solid income stream in today’s troubling inflationary and risky economic environment. An emerging solution is the Multi-Year Guaranteed Annuity (MYGA) — which saw explosive growth in the first quarter of 2022. According to Insurance News Net, MYGA sales were up 30.1% in the first quarter of 2022 compared with the previous quarter.
MYGA Sales Surge
Why Own A MYGA?
A MYGA can be an ideal product for individuals seeking to avoid major exposure to risky parts of the market while taking advantage of rising interest rates. Through a guaranteed fixed payout rate for a specific period, an investor can receive a higher yield than in typical bond funds and Certificates of Deposit (CDs). One strategy can be to stagger MYGA contracts so that there is different duration exposure, much like bond laddering. This tactic is particularly beneficial should interest rates keep creeping up. You can think of a MYGA as a CD offered by an insurance company – highly-rated providers can issue MYGAs with substantial yields and minimal risk.
Real Yield
Higher market interest rates mean MYGAs may have better yields today. Data from David Blanchett and Michael Finke show that average MYGA rates moved from under 2% for A++ and A+-rated issuers to above 3% at the end of the first quarter of 2022. Suddenly, there is low-risk yield to be had.
MYGA: A Tax-Savvy Solution
MYGA gains are only taxed when the annuity is sold, so there is a tax advantage to owning one relative to holding a bond fund that pays out taxable income each month. Individuals and couples approaching retirement might find the tax benefit particularly attractive since those clients’ income might be high, putting them in a high-tax bracket.
Halo Investing’s Issuer Analysis
Halo Investing’s Outsourced Insurance Desk (OID) partner with many companies whose products appear on our marketplace. Rated B++ by A.M. Best and currently on positive watch, advisors can have confidence that the MYGA issuer will be there to fulfill the future obligations through its best-in-class life and annuity products. With experienced management and state-of-the-art technology & innovation, we find that many annuity companies have stepped up their risk management capabilities to match modern financial challenges. Also, Halo’s OID and seamless platform allow advisors to save time to focus on client relationships.
MYGAS For RIA Clients
Halo Investing provides fee-based MYGAs for Registered Investment Advisors (RIAs) on our platform. MYGAs with three-year and five-year terms are currently available with rates north of 4% (As of June 2022, these rates will change with time). Compare those yields to what you will find on a CD or bond fund – you’ll quickly realize that a MYGA could play a significant role in the portfolios of clients in their late-career phase or retirement.
MYGA Characteristics
MYGA contracts can be owned in both non-qualified and retirement accounts as well as within trusts and corporate accounts. What’s more, nearly anyone can own a MYGA, and renewals are available up to age 99. Liquidity and flexibility have increased in recent years. MYGAs offered through Halo are available in 23 states, including Illinois.
Conclusion
Multi-Year Guaranteed Annuities are a growing niche of the insurance market. This annuity product can be used to augment a portfolio built to produce an income stream. Halo Investing partners with insurance companies to offer MYGAs and other annuities with potentially attractive payouts. Advisors can have confidence in working with Halo’s experienced team and owning this annuity type through a highly-rated company.
Please see our Halo Disclaimer for other important disclosures.
