The Money Mustache Community

General Discussion => Post-FIRE => Topic started by: blue_green_sparks on October 30, 2020, 06:08:44 AM

Title: Multi-Year Guaranteed Annuities
Post by: blue_green_sparks on October 30, 2020, 06:08:44 AM
Some of my 1 and 3 year relatively juicy brokered CDs have been maturing and the recent sub 1% replacements and the current bond market just don't "interest" me when it comes to my safe stash.
Started looking at MYGAs (sometimes called "CD annuities") because the 5 year contracts are currently yielding a bit above 3% for 'A' rated firms. Not completely illiquid, some deals allow limited withdrawals of interest. I plan on letting the returns compound. So my 5 year compounded contract yields 3.24%. I am OK with that.

If using pre-tax IRA funds, the contract stays as part of your IRA portfolio and a direct institution to institution transfer does not count as an IRA rollover. Outside of an IRA, the taxes are deferred. At maturity you can either receive a lump distribution or periodic distributions to disperse tax burdens, a nice option for non IRA annuities.

They are not backed by the Fed like a CD, however they may be covered by state guaranty institutions should the insurance company fail. My state covers an aggregate of 300K dollars or 250K per contract. I have no idea how messy an unfortunate event like that can get. Yikes.

Well just thought I would share that info because I never considered any annuities before now but with such low fixed rates perhaps other retirees may want to consider them.
Title: Re: Multi-Year Guaranteed Annuities
Post by: ysette9 on October 30, 2020, 11:34:22 AM
I was listening to a financial podcast the other day and the topic covered more exotic alternatives to bonds in this low interest rate environment. We were reminded about how bonds are supposed to be the ballast to reduce volatility in a portfolio. They arent in there for returns; that is why you have equities as well. Remember that there is always more risk in these alternative products that have higher returns.

It is one thing to find a different bank with a higher interest rate on a substantially similar product, but you are talking about something else. If you are willing to take more risk then just increase your stick allocation in your portfolio. The bonds are there to be stable and hedge short-term risks so you really donít want to mess with that.