RS Financial Group, LLC believes Multi Year Guaranteed Annuities could be an option for their financial planning firm in Memphis, TN. Interest rates began to tumble downward in 2008, leaving many retirees in Memphis, TN subjected to reinvestment risk. Every instance a fixed rate annuity or Certificate of Deposit (CD) matured for renewal, the retiree was faced with a lower interest rate, which lowered their yearly retirement income. By 2012, the five-year interest rates on CDs were just above .50%. Lower interest rates along with a rising inflation rate on necessities, left many retirees in Memphis with a negative real return on their CD investments. Many investors began to search for alternative short-term, safe-money investing solutions in Memphis.
Several Memphis retirees chose a Multi-year Guaranteed Annuities (MYGAs) solution for their short-term, safe-money needs. MYGAs are fixed annuities that guarantee a declared interest rate for a pre-set number of years. These types of fixed rate annuities are issued by insurance companies with surrender periods.
MYGAs and CD’s are similar in a few ways. The similarities between these two products could be: short- to mid-term investments, declared interest rates for the duration of the product’s term, and being classified as safe money investments. Retirees often use these products as emergency funds and as short-term accounts during retirement. However, even though they look similar they are very different safe-money vehicles. Differences between MYGAs and CDs are tax-deferral versus annual taxable, allowing for additional deposits, liquidity options during the product’s term, offering a lifetime income option, and beneficiary solutions on qualified accounts. MYGAs offer most of the features that CDs offer and they offer many more features as well.
Typically, MYGAs offer higher interest rates than CDs, but that is not the only factor investors in Memphis want to consider when comparing these two investments. Chris Sumner with RS Financial Group said that he is often asked, “How do I know what safe-money investment is the best for me”? Chris also said annuities offer more flexability and features than CDs, but that does not neccesarily mean that they the best investment account for each individual's safe-money investing. Investors in their accumulation years, typically will purchase CD’s however, people nearing retirement and retirees often choose MYGA’s.
Most times, the reason annuities could be a better option for those who are age 59 ½ or older; or for those who do not intend to withdraw all interest or principal (on IRAs) until normal retirement age, is that they can be subject to IRS early withdrawal penalties. No matter if the owner has funded with pre- or post-tax dollars, the owner can be penalized by the IRS if taking withdrawals of taxable dollars before age 59 1/2. The IRS early withdrawal penalty does not apply to owners older than age 59 ½ or the beneficiary(ies) of the MYGAs when the owner passes regardless of their age.
Tim Boam, VP of Operations with RS Financial Group, also mentioned another reason he feels MYGA’s could be ideal for retirement, the Triple Compounding. With MYGA’s tax deferral benefit the investor receives compounding interest: interest on the principal, interest on the interest, and interest on the tax-deferred earnings. He said that interest will compound through tax-deferred growth each year and accumulate more quickly than a taxable CD.
If you would like to learn more about MYGA’s and your retirement, please call 901-312-1630 to speak with one of our investment advisor representatives or click https://www.rsfinancialgroup.com/ to learn more about RS Financial Group.