Joshua Galyon
Michael “Mike” Rose, known for his years as a Miramonte High School social science teacher, has developed a strong background in education, collaboration, and analytical communication. While at Miramonte, he expanded the Law and Society program from 23 to 200 students and guided a Model United Nations team to achieve a top 20 global ranking. His teaching career emphasized critical thinking and real-world application—skills also vital when exploring financial topics like Multi-Year Guaranteed Annuities (MYGAs). Mike Rose Miramonte’s experience fostering academic excellence and strategic understanding makes him well positioned to explain how structured financial tools like MYGAs can fit into long-term planning.
Understanding Multi-Year Guaranteed Annuities
A Multi-Year Guaranteed Annuity (MYGA) is a fixed annuity contract that insurance companies offer to conservative investors. MYGA offers a guaranteed interest rate for a specific period, typically ranging from three to 10 years. At the end of the term, investors can choose to renew the contract, withdraw the accumulated funds, or convert it into an income stream through annuitization.
When purchasing MYGA, investors deposit a lump sum amount of money as determined by the insurance company. The insurer then credits interest to the account based on the guaranteed rate. The interest compounds annually, and both the principal and interest remain tax-deferred until the funds are withdrawn. For instance, if an investor deposits $100,000 into a five-year MYGA offering a 4.5 percent annual rate, the value at maturity will be around $124,000 (compounded annually).
Notably, MYGAs are not linked to the stock and bond markets, meaning their returns remain stable even during market fluctuations. This feature is attractive to conservative investors who value financial safety and steady growth of their portfolios.
Another advantage of investing in MYGA is the competitive yields it offers in relation to other options. MYGAs often offer higher rates than the traditional certificate of deposit (CD), the financial product banks and other financial institutions offer, which pays a fixed interest rate for a specific term, where the investor cannot withdraw their funds. Insurance companies can offer these higher interest rates since they invest premiums in long-term, fixed-income securities, and they spread risk across multiple policyholders.
Additionally, in case a MYGA investor dies during the contract period, the accumulated funds are transferred to the designated beneficiaries without the need for a court-supervised process. This feature simplifies estate settlement, eliminates unnecessary chaos, saves money, and ensures beneficiaries can quickly access the funds.
Investors can effectively diversify their portfolios by buying MYGAs. Financial experts advise clients to spread out their investments to various unrelated options to mitigate the risk of total losses in case one investment vehicle underperforms. Investors can add MYGAs to their portfolios and balance out higher-risk assets to preserve their wealth.
Despite these benefits, MYGAs have several drawbacks that investors should understand before making decisions. One, this investment vehicle does not suit those with short-term needs. Most insurance companies prefer contracting patient investors who can comfortably wait for the agreed-upon time to elapse. It is possible to withdraw funds before the term ends, but this attracts surrender charges that can significantly reduce returns.
Moreover, early withdrawal for those under the age of fifty-nine and a half years attracts a ten percent penalty from the Internal Revenue Service (IRS), in addition to regular income tax. This makes MYGA less suitable for young investors.
Experts also argue that since MYGAs offer a fixed rate of return, they do not adjust for inflation. The average rise in commodity prices is common in most economies. Over time, the purchasing power of one’s invested funds declines if inflation rates outpace the guaranteed rate of return.
It is advisable to hire a financial advisor before investing in MYGA. These professionals assess an investor’s profile to determine if the investment aligns with their financial goals and risk tolerance.
Financial advisors can also help investors understand important details about the product and the insurer to mitigate losses. Despite being unrelated to the stock and bond markets, MYGA investments are only as strong as the issuing company. An experienced professional helps to assess the insurer’s financial strength. They check the firm’s credit ratings from agencies, such as Moody’s and A.M. Best, to determine if it is viable for an investor to deposit their lump sum amount for the specified period.
About Mike Rose Miramonte
Michael “Mike” Rose taught social science at Miramonte High School from 2013 to 2020, where he launched and expanded the Law and Society program and developed a nationally ranked Model United Nations team. He earned a master’s degree in education from St. Mary’s College and was recognized as Student Teacher of the Month during his graduate studies. A former FanSided sports writer, Mike Rose covered basketball and football, including St. Mary’s Gaels and the Oakland Raiders. He enjoys hiking, golf, and other leisure activities.
