Nobody wants to outlive their money, and plenty of retirees are concerned that the stock market rollercoaster could harm the longevity of their portfolios.
For investors seeking capital preservation along with some growth, fixed annuities may be a good solution, offering some of the most attractive yields in years.
However, investors should understand that the highest rates sometimes come with trade-offs.
“Just like riskier borrowers pay higher mortgage rates, lower-rated insurers typically pay investors higher rates,” says Aaron Brask, a financial advisor and owner of Aaron Brask Capital in Lake Worth, Florida.
He adds that he regularly sees quotes from lower-rated carriers offering the highest interest rates for contracts such as multi-year guaranteed annuities (MYGAs) and the most guaranteed lifetime income for products such as fixed and index annuities.
Understand Rates & Duration
When selecting a MYGA, buyers are naturally attentive to the rate, but duration can play a more critical role, says Paul Tyler, host of the “That Annuity Show” podcast.
“Start by focusing on your personal needs,” he says. “When will you need access to your money? Which time frame best fits your overall financial strategy?”
While aiming for the highest possible rate makes sense, he adds, savers also want to avoid surrender charges when withdrawing to pay essential expenses.
Here’s a look at five annuities that are among those paying the best rates:
| Term | Provider | Product | Rate |
|---|---|---|---|
| 3 Year | Revol One | DirectGrowth MYGA | 5.65% |
| 4 Year | Nassau | Simple Annuity | 5.50% |
| 7 Year | Knighthead Life | Staysail Annuity | 6.60% |
| 8 Year | EquiTrust | Certainty Select | 5.65% |
| 9 Year | Clear Spring Life | Preserve MYGA | 5.10% – 5.40% |
3-Year Term: Revol One, DirectGrowth MYGA
The Revol One DirectGrowth MYGA is intended to help save for long-term financial objectives. The principal grows tax-deferred with a guaranteed fixed interest rate for three years; the company also offers this contract with 5-, 7-, and 10-year terms.
The current rate of 5.65% makes it very attractive for three years, considering the minimum investment is just $25,000, says Thomas Alessi, president of the ARIES Foundation for Financial Education in Auburndale, Massachusetts.
He adds that the company’s B++ rating might scare some investors, but that shouldn’t be a big concern for a three-year term. “One real concern is no access for the duration,” he says. “If this is worrisome, then I would suggest choosing the version with partial surrender. You will get a slightly lower rate of 5.55%, but at least have access to the interest if needed.”
4-Year Term: Nassau Simple Annuity 4
Nassau Life offers a deferred MYGA with a four-year guarantee period and an annual yield of 5.50%. It offers a full penalty-free withdrawal window after four years.
“This single premium fixed annuity delivers guaranteed growth and includes a 5% annual penalty-free withdrawal,” says Tom Buckingham, chief growth officer at Nassau Financial Group in Hartford, Connecticut.
The feature ensures that people in or near retirement get stability along with access to their funds, if necessary, he adds.
“Whether the focus is on safety, growth or income planning, MYGAs offer flexible options across various durations to help these individuals plan confidently to meet their financial goals,” Buckingham says.
7-year term: Knighthead Life, Staysail Annuity
Savers looking for a high rate with a relatively short commitment may be interested in this MYGA. “It offers a strong guaranteed rate and accepts deposits up to $2 million,” says Tyler.
The minimum premium of $10,000 likely appeals to savers who want to make a small commitment. Its offering rates start as high as 6.60% simple interest.
Knighthead accepts qualified plan rollovers from individual retirement accounts, 401(k)s, 403(b)s and pension or profit-sharing plans.
This contract offers no free withdrawals. If the account owner chooses to make withdrawals, all, excluding required minimum distributions (RMDs), may be subject to withdrawal charges and market value adjustment.
However, in exchange for a rate reduction for the entire guaranteed option period term, the contract offers 10% free withdrawals annually, based on the accumulated value at the beginning of the most recent contract year.
The rate reduction for selecting the free withdrawal rider is 0.50% for the 7-year contract.
Is An Annuity Right For You?
8-year term: EquiTrust, Certainty Select
The Equitrust Certainty Select could be good for someone who’s currently sitting on cash and wants to get a 5.65% guaranteed rate of return, says Carman Kubanda, a financial planner at Innovative Wealth Building in Fort Worth, Texas.
That rate is compounded annually for the eight-year term.
“On a $100,000 contract, you are guaranteed $55,000 at the end of the term,” Kubanda says. “Because it is an annuity, all of that interest is tax deferred.”
However, he says, a drawback is that a contract owner can only withdraw the interest each year; the initial premium is locked in for the full eight years, or there will be a surrender charge.
EquiTrust is rated B++ by AM Best and A- by Fitch and S&P.
Savers can access the product with a deposit of just $10,000.
9-year term: Clear Spring Life, Preserve MYGA
The Clear Spring Life Preserve MYGA may be a good choice for those concerned that interest rates will decline in the next several years. It’s open to investors with a minimum deposit of $5,000, and has a guaranteed rate of 5.10%, rising to 5.40% for deposits of more than $100,000.
“With an A-rating and access to 10% of the contract value after the first year, this could well be the vehicle to quell a long-term saver’s angst,” Alessis says.
The Preserve MYGA allows one penalty-free withdrawal of up to 10% of the account value each year, starting in year two. Withdrawals above that amount may be subject to surrender charges and a market value adjustment. RMDs that exceed the free withdrawal limit aren’t penalized.
This product can also provide full liquidity for nursing home expenses, subject to a rider provision if the contract is purchased before age 76, in force for at least one year and nursing home confinement must last at least 90 continuous days.
Guarantee financial freedom with an annuity.