Episode Show Notes
So I had a conversation with my aunt a few weeks ago — she’s sixty-eight, just sold a rental property, and she’s sitting on about a hundred and twenty thousand dollars. And she called me and said, ‘Jessica, everyone keeps telling me to look at a MYGA, but I don’t even know what that stands for.’ And honestly, I didn’t have a clean answer for her in the moment.
That’s such a common starting point. MYGA stands for Multi-Year Guaranteed Annuity. And the core idea is actually pretty simple — you hand over a lump sum to an insurance company, they credit you a declared interest rate for a set number of years, and at the end of that term, you decide what to do next.
Okay, so it’s like a CD in that sense — you lock in a rate, you wait.
That’s the intuition most people start with, and it’s not wrong. But there are some meaningful differences we should get into, because the CD comparison trips people up in both directions — sometimes people think MYGAs are scarier than they are, sometimes they think they’re simpler than they are.
Right, and I think the rate is the thing that grabs people’s attention first. Like, my aunt saw a number on a website and that was the whole conversation — ‘I can get this rate, should I do it?’ But that’s not really the right question, is it?
It’s part of the question. The rate absolutely matters — it determines how much your money grows over the contract period. But if that’s the only thing you’re looking at, you’re missing a lot. And we’ll get into what else matters. First though, let’s talk about why rates are where they are right now, because that context is actually useful.
Yeah, because I remember a few years back people were barely talking about MYGAs. And now it feels like everyone is.
Because the rate environment changed dramatically. Insurance carriers invest the premiums they collect — primarily in bonds and other fixed-income instruments. So when prevailing interest rates go up, carriers can offer higher credited rates on new contracts. When rates were near zero, MYGAs were kind of a tough sell. Now they’re much more competitive.
And that’s why ten-year MYGAs in particular have gotten so much attention lately?
Exactly. Longer terms have generally come with more competitive rates because the carrier is getting a longer commitment from you. They can plan their bond portfolio around that. So a ten-year MYGA has been one of the more popular options — but that doesn’t mean it’s right for everyone, and the term length is a big deal.
Let’s actually walk through how a ten-year MYGA works mechanically, because I think people hear ‘ten-year contract’ and they assume it means their money is completely locked up for a decade.
And that’s not quite accurate. So here’s the basic structure. You put in a single premium — there’s usually a minimum, which varies a lot by product, anywhere from ten thousand dollars up to a hundred thousand or more depending on the carrier. The interest compounds tax-deferred, which is a big deal we’ll come back to. And yes, there is a surrender charge schedule if you need to get out early.
Okay, surrender charges — that’s the part that scares people. Walk me through what that actually looks like.
So on a ten-year contract, a pretty typical schedule might start at nine percent in year one and then step down each year — eight percent, seven percent, and so on — until it hits zero by the end of the term. So if you’re in year two and you need to pull everything out, the carrier takes a chunk.
But not all of it, right? There’s usually some amount you can access without a penalty?
Yes, and this is important. Most MYGAs have what’s called a penalty-free withdrawal provision. A lot of contracts let you pull out the interest earned each year, or sometimes a percentage of the account value — often ten percent — without triggering a surrender charge. But here’s where it gets nuanced: some carriers include that automatically, and others offer it as an optional rider that slightly reduces your credited rate.
So you might be comparing two contracts with the same headline rate, but one of them is actually giving you a little less flexibility than you think.
Exactly. And this is why I always say the rate is the starting point, not the ending point. Two contracts can both say ‘ten-year term’ and have very different surrender schedules, very different penalty-free provisions. You have to read the contract.
There’s also something in a lot of these contracts called a market value adjustment. I’ll be honest, that one took me a while to understand.
Yeah, an MVA is one of those things that’s buried in the fine print and then surprises people. Basically, if you surrender the contract early, some carriers will apply an adjustment — up or down — based on how interest rates have moved since you bought the contract. So if rates have gone up since you purchased, the MVA might actually reduce what you get back. If rates have gone down, it could work in your favor.
So it’s not always negative, but it’s a variable you need to know about.
Right. And not every MYGA has an MVA — some don’t. But you absolutely want to ask before you sign. ‘Does this contract have a market value adjustment?’ should be on your checklist.
Okay, let’s go back to the tax piece, because you mentioned tax-deferred compounding and I think that’s actually one of the most underappreciated parts of how MYGAs work.
It really is. So here’s the comparison that makes it concrete. If you put money in a bank CD, the interest you earn is taxable every single year — even if you don’t touch it, even if you let it sit and compound. You’re getting a tax bill on growth you haven’t actually used yet.
Which is annoying.
It is. With a MYGA, you don’t owe income tax on the growth until you actually take a withdrawal. So the interest is compounding on a larger base because you’re not losing a slice to taxes each year. Over a ten-year period, that difference can be meaningful depending on your tax bracket.
And for Tennessee residents specifically, there’s actually a pretty favorable state tax picture here.
Tennessee is actually in a good spot on this. There’s no state income tax on wages or salaries, and the Hall Income Tax — which used to apply to interest and dividends — was fully repealed as of January first, twenty twenty-one. So Tennessee residents generally don’t owe state income tax on MYGA withdrawals.
Federal tax still applies though.
Yes, absolutely. The growth portion of any distribution is subject to federal income tax. And if your MYGA is sitting inside a traditional IRA or another pre-tax account, the whole withdrawal is typically taxable at the federal level — not just the growth. That’s a conversation for a tax professional, not a general rule you want to apply without looking at your specific situation.
Right. And speaking of situations — let’s talk about the CD comparison more directly, because I think a lot of Tennessee savers are genuinely weighing those two options right now.
It’s probably the most common comparison we see. And they’re not as different as some people think, but the differences that exist really matter. Both give you a fixed rate for a set term. Both have penalties if you exit early. The tax treatment is the big one we just covered.
What about the safety question? Because I know FDIC insurance comes up a lot when people are comparing.
Yeah, this is where I want to be careful not to oversimplify. CDs at FDIC-member banks are insured up to two hundred and fifty thousand dollars per depositor per institution. MYGAs are not FDIC-insured — they’re backed by the financial strength of the insurance company that issued the contract.
So the insurance company itself is the guarantee.
Exactly — the promise is only as strong as the company making it. That’s why carrier financial strength matters so much, and why it’s worth understanding before you ever compare rates.
So walk me through that — how do you actually evaluate whether a carrier is financially solid?
The main tool most people use is A.M. Best ratings. A.M. Best is an independent rating agency that evaluates insurance companies on their ability to meet their obligations. The scale goes from A-plus-plus, which is Superior, down through A-plus, A, A-minus, B-plus-plus — which they call Good — and then lower from there.
And higher-rated carriers tend to offer lower rates?
Often, yes. And that’s a real trade-off that people have to think about. A carrier with a lower rating might be offering a more attractive rate. Whether that trade-off makes sense is genuinely a personal decision — it depends on how much you have in the contract, what other assets you have, your overall situation. It’s not something where there’s a universal right answer.
That’s actually a good point to push back on a little, Caleb, because I think sometimes people hear ‘lower-rated carrier’ and they immediately think it’s a bad idea. But a B-plus-plus carrier isn’t a fly-by-night operation.
Fair. A.M. Best’s B-plus-plus is still ‘Good’ — it’s not a red flag in isolation. The question is whether the rate premium you’re getting compensates for whatever additional uncertainty exists. And that’s exactly the kind of conversation to have with a licensed agent who can look at the full picture.
Let me throw a scenario at you, because I think this makes it more concrete. Picture a couple — both sixty-five, they’ve got a hundred thousand dollars sitting in a savings account earning basically nothing, and they’re trying to decide between a five-year MYGA and a ten-year MYGA. How do you even start that conversation?
The first question I’d ask is: what’s this money for? Is it money they might need in five years for something specific — travel, a home repair, helping a kid with a down payment? Or is it truly money they don’t expect to touch for a decade?
Because the rate difference between five and ten years might be tempting, but if they need liquidity in year six—
Then the ten-year surrender schedule is still active. Exactly. And that’s where people get into trouble — they see the higher rate on the longer term and don’t fully internalize what ‘year seven, eight percent surrender charge’ actually means in dollars.
On a hundred thousand dollars, eight percent is eight thousand dollars. That’s real money.
It is. And that’s before any MVA adjustment if the contract has one. So the term length decision is really a liquidity decision first, and a rate decision second.
I also want to make sure we talk about what happens at the end of the term, because I think people sometimes forget that the contract doesn’t just end — there’s a decision point.
Right, and this is something people overlook when they’re buying. Most carriers give you a window at maturity — often thirty days — where you can withdraw the full value without any surrender charge, roll it into a new contract, or explore other options. If you do nothing during that window, the contract typically auto-renews at whatever rate the carrier declares at that time.
Which might be great or might be terrible depending on where rates are.
Exactly. So you want to put that maturity date in your calendar years in advance. Don’t let it sneak up on you.
I actually know someone this happened to — a neighbor of mine, sixty-two when he bought a five-year fixed annuity. He just kind of forgot about it, the window came and went, and it renewed at a rate that was noticeably lower than what he could have gotten by shopping around at that point.
That’s a really common story. The contract does exactly what it’s supposed to do — it renews. But the person didn’t engage with the decision. And that’s not the carrier doing anything wrong; it’s just what happens when you’re not paying attention.
Okay, let’s talk about some of the other things that can affect whether a specific MYGA is actually available to you. Because I think people sometimes go through this whole research process and then find out the product doesn’t apply to their situation.
Yeah, there are a few practical filters. State availability is one — not every MYGA is approved for sale in every state. Tennessee residents need to confirm that any product they’re looking at is actually approved here. That’s not a given.
And age limits?
Carriers set maximum issue ages, often somewhere around eighty-five or ninety. And those can vary depending on whether the money is in a qualified account — like an IRA or a four-oh-one-k — or a non-qualified account. So someone who’s eighty-two might find that certain products aren’t available to them, or that the qualified versus non-qualified distinction changes what they can access.
And the minimum premium thing — that’s tripped people up too.
Definitely. Some products start at ten thousand dollars, which is pretty accessible. Others require a hundred thousand or more. So if you’re comparing rates across carriers and one of them has a minimum that’s higher than what you have available, that rate is kind of irrelevant to you.
What about riders? I feel like that’s a whole conversation that sometimes gets glossed over.
Riders are add-ons to the base contract. The most common ones on MYGAs are things like enhanced death benefits. And they do come at a cost — usually a small reduction in your credited rate. So you’re trading a little bit of growth for an additional feature.
And whether that’s worth it totally depends on the person.
Completely. There’s no general answer. Someone who has estate planning concerns and wants to make sure a specific amount passes to a beneficiary might find an enhanced death benefit rider really valuable. Someone else might look at the rate reduction and say, ‘I’d rather have the higher rate and handle that separately.’ It’s not a product decision; it’s a personal situation decision.
Okay, let’s try to bring this together practically. If someone in Tennessee is sitting down right now and saying, ‘I want to compare MYGA rates’ — what does that process actually look like? Because I don’t think it’s as simple as Googling a number.
It’s really not. And the first thing to understand is that rates change frequently — sometimes week to week. So a rate you saw last month might not be available today, and a rate that wasn’t available last month might be on the table now.
So you need current quotes, not cached information.
Right. And you want quotes from multiple carriers, not just one. The spread between what different carriers are offering for the same term can be surprisingly wide. Shopping around isn’t just a good idea — it’s kind of the whole game.
But then once you have those quotes, you’re back to the conversation we’ve been having — the rate is just the starting point.
Exactly. You look at the surrender schedule, you look at the penalty-free withdrawal provisions, you check whether there’s an MVA, you look at the carrier’s A.M. Best rating, you confirm it’s approved in Tennessee, you check the minimum premium and the maximum issue age. It’s a checklist, not a single number.
And honestly, that’s a lot for someone to do on their own. Especially if they’re not used to reading insurance contracts.
Which is why working with a licensed annuity agent is genuinely useful — not as a sales pitch, but as a practical matter. A good agent can pull live quotes from multiple carriers, walk you through the contract details side by side, and help you figure out whether a MYGA actually fits your situation or whether something else makes more sense.
And they should be asking you questions, not just showing you the highest rate.
That’s the tell. If an agent is just leading with ‘here’s the best rate,’ that’s a yellow flag. The right questions are about your timeline, your liquidity needs, whether this money is qualified or non-qualified, what your income situation looks like in retirement. The product comes after that conversation, not before.
Going back to my aunt for a second — she’s sixty-eight, she’s got that hundred and twenty thousand from the rental property sale. What are the questions she should be walking into that conversation with?
I’d want her to know: does she have other liquid savings she can access if something comes up? Because if this hundred and twenty thousand is her only cushion, a ten-year surrender schedule is a real constraint. What’s her income picture — does she have Social Security, a pension, anything else coming in? And what’s the tax situation on this money — is it already been taxed, or is it in a pre-tax account?
Because if it’s non-qualified money — already been taxed — the tax-deferral benefit of the MYGA is actually pretty attractive for her.
Especially in Tennessee where she’s not paying state income tax on the growth either. The federal piece still applies when she takes distributions, but she’s not getting hit twice.
That’s actually a meaningful advantage that I don’t think she’d fully appreciated when we talked.
It’s one of those things that doesn’t sound exciting until you do the math. And the math over ten years of compounding without an annual tax drag — it adds up.
One last thing I want to flag, because I think it’s easy to forget in all of this — MYGAs are insurance contracts, not investments. That distinction matters.
It really does. And I think it matters beyond just regulatory language. The way you evaluate an insurance contract is different from the way you evaluate a stock or a mutual fund. You’re not chasing returns; you’re making a decision about how a portion of your assets behaves over a specific period. That’s a different kind of question.
And it fits into a broader financial picture — it’s not the whole picture.
Right. Most people who use MYGAs well are using them for a specific portion of their assets — money they don’t need immediate access to, where they want predictable growth and tax deferral. It’s not a replacement for everything else; it’s a tool for a specific job.
And knowing what that job is before you buy is kind of the whole point of everything we’ve talked about today.
That’s it. Know the term, know the surrender schedule, know the carrier, know your own timeline. The rate is the headline — but the contract is the story.
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