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Multi Year Guaranteed Annuities (MYGA)-Rising Interest Rates For You - YouTube
Channel: Cardinal Advisors
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Okay, so, today we're talking about聽
alternative investments or an alternative place聽聽
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to put your cash money, or money market money, or聽
bond money, secure money - the stuff you're making聽聽
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very low interest rates on. And we're talking聽
about this again, we've talked about it a few聽聽
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times over the last several months and the reason聽
we have is a lot of money's flowing into these聽聽
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things and they're called MYGAs or Multi-Year聽
Guaranteed Annuities. But I'm going to call聽聽
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them an alternative place to put your cash.聽
I mean, that's because I'm trying. I think I聽聽
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got a little too technical in some of the previous聽
videos so I'm going to try to simplify this today.聽聽
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I got less words on the board and just really聽
explain these because they're just more and more聽聽
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important. With the stock market doing what聽
it's done over the last four or five months聽聽
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in combination with the bond market has lost聽
value. And so people are looking for a safe haven聽聽
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and one of the safe haven鈥檚 is you just stick聽
the money in the bank or in the cash version聽聽
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of your account at your custodian and consequently聽
you're getting much less than 1% interest聽聽
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and people are troubled by that. I mean they聽
feel good that at least it's not going down like聽聽
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some of the other investments but it's not a very聽
good long-term strategy with inflation and things聽聽
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your money's almost going backwards when聽
you're getting like 1/10 of 1% interest on it.聽聽
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So I'm going to show you today, a way to get聽
a more fair interest rate with a stable value.聽聽
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So, and what that is, is the is the MYGA, an聽
annuity, that has a fixed term and it has a聽聽
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fixed interest rate. So this is an annuity that is聽
designed to resemble a CD or to resemble a bond.聽聽
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And it's just you put the money there,聽
you get a certain interest rate,聽聽
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you leave the money there until the period ends聽
or the term ends, and then you can take the money聽聽
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and the insurance companies behind these things聽
have priced them in such a way that they expect聽聽
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the money to leave at the end of the term. Now聽
some of the money might stay there but then聽聽
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you'll start over a whole new deal with them.聽
Okay, so this is an example of a MYGA ladder聽聽
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that one of my clients just purchased. Okay and聽
this particular guy had about $500,000 in cash,聽聽
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in money that some of it is cash that he's had聽
for quite a while so he was pretty much holding聽聽
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what many would say too much cash for a long聽
period of time. And then kind of the other half聽聽
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of it is cash that's created by him selling some聽
of his investments a little earlier in the year聽聽
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to try to stem his losses and he sold not聽
only stocks but he sold some of his bonds.聽聽
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So in any case, he actually has more than聽
$500,000 but not a lot more because he,聽聽
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he really is under the assumption after we did聽
some work together that he really doesn't need聽聽
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any more than a $100,000 dollars of cash聽
laying around so there was a need to invest聽聽
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this in something and he doesn't want to go into聽
anything with any more risk. So, it added to that,聽聽
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he doesn't want to tie his money up for five or聽
six years where he can't get at it because he聽聽
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might want to start getting back into the market,聽
might not. I mean, it just, it's really he wants聽聽
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that option, he might want to go buy something, he聽
might want to give some of this money to his kids聽聽
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and grandkids, I mean so you might want to spend聽
it on something. So the whole idea of a 5-year聽聽
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MYGA ladder or Multi-Year Guaranteed Annuity聽
ladder just made a lot of sense for him. And so,聽聽
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the main reason that he's doing聽
that is to get these interest rates聽聽
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on the various terms. You know from 2.85% on the聽
2-year strategy and 4.3% on the 6-year strategy.聽聽
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Now just right off the bat, if he聽
wanted to simplify this whole thing,聽聽
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he could have put the whole聽
$500,000 into this 6-year deal聽聽
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and he'd be guaranteed 4.3% interest for the聽
whole 6 years. Now that would be an option.聽聽
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And he would also have this 10% liquidity, if聽
you just did that, where he could get at $50,000聽聽
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during any year and he could do it every year,聽
um, where this, these contracts, all of these聽聽
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allow you to take 10% out in a withdrawal and聽
face no surrender penalties once a year. So聽聽
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he's not going to do that but that's an option in聽
there. Now the reason he went with the MYGA ladder聽聽
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is he anticipates leaving these in this type of聽
thing for quite a while. Okay that's, that's his聽聽
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plan. And this is money that he's really going聽
to pass on to his kids and grandkids. At least he聽聽
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thinks that now, and so we have the beneficiaries聽
on this thing set up that way. But you can聽聽
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take this and together with me and you, we can聽
reorganize this any way you want to do this. So,聽聽
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these are all, these are five different insurance聽
companies, actually it's three different insurance聽聽
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companies, some of them appear twice in this聽
ladder because they've got the best rates going.聽聽
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They're all A category, they're all A-Rated聽
insurance companies so there's not, you know,聽聽
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concern about them offering too much interest聽
and going out of business, that kind of thing.聽聽
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And, so this is a combination of five different聽
annuities some with different companies聽聽
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and one ends in 2 years, one ends in 3聽
years, 4 years, 5 years and 6 years. So, and聽聽
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the longer you tie the money up, the聽
greater the interest rates you get.聽聽
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And this particular one in 6 years at 4.3% is,聽
I mean, there's a company on the sixth year they聽聽
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must have had some availability of some 6-year聽
money or something and they just worked it out,聽聽
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that's the best deal that we got going right now.聽
And we have a number of people just buying that聽聽
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but it works real nice in the ladder. And so, what聽
this guy's gonna do is he leaves the money there,聽聽
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for two years, and in May of 2024, two years聽
from now, what he is presumably going to do is聽聽
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just take this money and then聽
purchase a new 5-year deal.聽聽
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And that'll be in May of 2024 and that 5-year聽
one will be due in 2029. And I'm anticipating聽聽
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interest rates 2 years from now on 5-year money聽
are going to be higher. And, so he may do that,聽聽
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he may not. He may decide I want this money, I聽
want it liquid, I want the money and the interest,聽聽
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and send me my money, okay. Um, but what most聽
people do with these things is they just buy a new聽聽
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one. And then in May of 2025, 3 years from now,聽
same thing and same thing. And what happens is,聽聽
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if you'll notice this is paying a pretty good聽
interest rate compared to the shorter term,聽聽
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over time you're going to get more yield聽
that way and you're also going to have聽聽
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that liquidity feature of having one of these聽
come due every year so if you want to start聽聽
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cashing them in and using them for something or聽
deploying them somewhere else you could do that.聽聽
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Okay, let's talk about a few more聽
features. The 10% liquidity each year.聽聽
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Okay these things have a surrender penalty, so the聽
insurance company wants assurances that they're聽聽
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going to keep most of the money for the whole聽
term. That's how they can offer this higher rate,聽聽
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is park your money there, if you take聽
it out, there's a pretty stiff penalty.聽聽
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So, but, if you take out just 10% of聽
it, on all of these or any one of them,聽聽
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then no penalty. So you've got some pretty good聽
liquidity and you're not going to find that on聽聽
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CDs or bonds or something. It's just something聽
insurance companies offer and it's up to 10%.聽聽
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You also have in this MYGA ladder, you've聽
got 20% liquidity starting the third year so,聽聽
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and, that's what I was showing you earlier, is聽
you could instead of reinvesting it you could just聽聽
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take the money and run. So besides the 10% every聽
year, if you had a need for money, if something聽聽
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came up, you could just not redeploy that, take聽
the money and use it for whatever you want to. So,聽聽
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it's got pretty good liquidity features, I聽
still want to be clear, your money's tied up.聽聽
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It has to be to pay these kind of rates. Now, if聽
these are outside of an IRA and they're just in a聽聽
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regular account, then the interest earnings are聽
tax deferred, unlike a CD. I mean with a CD, they聽聽
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put the interest in the CD but you have to pay tax聽
on it each year, just like they sent it to you.聽聽
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With this, you don't. With, with an annuity that's聽
just for a term, as long as you leave the money聽聽
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in the account, the interest you've earned,聽
no current taxes do. Now if you redeploy it,聽聽
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still no taxes do because you're going to聽
roll over not, he's going to roll over,聽聽
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not a $100,00 in 2 years but it's gonna be聽
a $100,000 and maybe about $7,000 dollars聽聽
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of deferred interest that he hadn't paid taxes聽
on yet and now he's gonna roll that for another聽聽
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5 years. So it's a way to postpone taxes, you're聽
not eliminating them, somebody's going to pay the聽聽
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tax on it sooner or later but that's favorable聽
to a lot of people. And what this gentleman聽聽
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is actually doing, and you would be eligible to聽
do that on any of these annuities, is he wants聽聽
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the insurance companies, all five of them or all聽
five contracts, to send him the interest check聽聽
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every month. And that works out to be聽
a little over $1,500 dollars a month聽聽
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that he's earning. Doesn't sound like a lot聽
on $500 grand but you know it's $18,000 a year聽聽
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and, I mean, it's money that he, um, he just wants聽
coming in, he wants to see that money coming in聽聽
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and he knows his principles safe and then he'll聽
just decide whether he's going to reinvest or聽聽
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take the money. But my guess is he'll reinvest and聽
keep this ladder thing going and then he's going聽聽
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to probably get a little higher interest rate聽
on that first one every year as he reinvests.聽聽
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He'll start that $1,500 bucks a month, will go up聽
a little bit, never touching the principle. Okay,聽聽
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now I want to point out also this 3.64% is the聽
average of all of these five in the MYGA ladder.聽聽
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Okay and that will tend to increase over time聽
assuming that you get better rates on 5-year聽聽
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money than you do 2-year money if you reinvest.聽
There's a direct payout on all five of these聽聽
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to the beneficiaries upon death. So you聽
know if this gentleman passed away in 2026聽聽
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and he had reinvested these contracts, you know,聽
his beneficiaries do not have to wait till the end聽聽
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of the term to collect his principal and interest.聽
The insurance company is just going to pay out,聽聽
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if that's what they want, if they want to聽
wait till the end of the term they can,聽聽
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but the insurance company is just going to pay out聽
directly to the beneficiaries. I want to clear up聽聽
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another thing is these Multi-Year Guaranteed聽
Annuities or MYGAs, they are eligible to be聽聽
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held within an IRA. So I have some clients聽
coming into me that have watched my videos,聽聽
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they've listened to me, and they're, they're聽
not clear on this. So they think that they have聽聽
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to get the money out of their IRA, pay the聽
taxes to invest in an annuity of any kind.聽聽
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That's just not correct. I mean, an annuity will聽
directly assume, so all five of these contracts聽聽
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could be IRAs. Now in this case, gentlemen's聽
case, they're not. But if somebody had $500,000聽聽
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in cash or in liquid in their IRA聽
and they wanted to keep it as an IRA聽聽
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but just get these guaranteed interest rates and聽
get rid of the risk, we would just write them five聽聽
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separate IRAs, with the insurance company.聽
So no tax is due until you pull money out.聽聽
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They're also eligible for ROTH IRAs. So when聽
we have people that want to do a conversion,聽聽
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then we'll usually do a pit stop聽
at the custodian we work with,聽聽
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where we're going to roll the money out of聽
their IRA into a self-directed IRA that's聽聽
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just going to be in cash, just for a while, and聽
then from there we're going to get it dispersed聽聽
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to the insurance company that's writing聽
the MYGA contract. So, I hope that I've聽聽
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simplified this today. We can write these in聽
all 50 states and the District of Columbia.聽聽
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We're licensed. Not all products are available聽
in all states, there are some states that you聽聽
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know are very limited in what they can offer or聽
they're more restrictive of what kind of interest聽聽
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you can pay out. But for the most part, you know,聽
in like 45 of them or 46 of them, they're pretty聽聽
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much there, what I'm showing you up here. We can聽
write an e-application, we can meet you on Zoom.聽聽
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If you just want to inquire about this stuff,聽
we can email you this stuff. I鈥檓 pretty easy,聽聽
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at [email protected]. You know you can call聽
us, you can go to our website, you can send us a聽聽
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message there. And if you've got, and you just聽
want to talk about and ask some more questions聽聽
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about this I'm a pretty easy guy to find. So聽
I'm Hans Scheil and I thank you for listening.
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