Are You Looking for Guaranteed Principal Return and Growth?
Guaranteed Interest of 3.20% for 2 years, 4.10% for 5 years! Guaranteed !
In order to achieve your financial plan you have to purchase products that meet the purpose defined. One purpose in a financial plan is guarantee principal and growth of assets. A Multi-Year Guaranteed Annuity (MYGA) is one consideration that brings concrete answers to the projection of growth. The reason is that a MYGA has a guaranteed rate of return per annum for a specific period of time. Thus, calculated future growth is guaranteed. In addition, the earnings, or growth, is tax-deferred for non-qualified accounts. This simplifies the planning process for calculating how much money you will have over a specific period of time, and guarantees what assets you will have at the end of the period.
I have always been on the fence when it came to MYGAs due to the fact that I could typically earn more with little risk using indexed annuities because in order for a MYGA to have a shortened surrender period and guaranteed interest, inevitably a lower interest would exists.
Typically, indexed annuities have an annual cap of 4.5-5%, depending on the carrier and the surrender period. That said, if the the market falls from the beginning of contract’s anniversary and the following years, zero interest is earned! However, if the market shoots up 20%, the indexed maximum allocated interest would still be 4.50%, conversely if the market falls 30%, the principal is protected and zero interest is credited.
So for example, if your money was indexed to the S&P 500 for a 5 year period with a 4.50% cap: Year 1 market returns 10%, thus the interest credited is 4.50%; Year 2, falls 10%, zero interest is credited; Year 3: market returns 15%, interest credited 4.5% (Cap); Year 4, another loser. no interest credited; Year 5: Credited interest of 4.5% in market gains. The average earnings over this 5 year period in this indexed annuity would be 2.70%, due to zero interest being credited in year 2 and year 4.
The total upside potential for the indexed annuity with an annual point to point cap is 4.50%. However because we had in the previous example 2 down years, the realized earnings was only 2.7% .
Okay, so lets circle back to the MYGA! Very easy! Essentially we gave up 40 basis points (.40%) to guarantee the principal’s growth every year.
End of year 5 Accumulated Value of $100,000 deposit
Index Annuity: $114,117
(Of course, you may want to check my numbers. I didn’t have my calculator when I was typing this article;-)
So at the end of the day, which was the better option?? With an interest rate as high as 4.10% Fixed (Not to mention a surrender period that is almost half of a traditional indexed, the choice is clear to me! Call our office today for more information. Agents and Advisors, we have an exclusive national contract with the above referenced carrier. We will not be between you and the carrier! Call our office today for more information
Beau Singletary, ChFC, CLU
Toll Free: (855) 664-5660
Office: (828) 513-5045
Fax: (828) 348-5526
Laurel Insurance Partners
118 5th Ave West
Hendersonville, NC 28792