As a follow-up to my post about MYGA fixed annuities, here are the details of my personal purchase to help remove some of the mystery from MYGAs. I bought the Personal Choice Annuity 5 annuity from Sentinel Security Life Insurance Company. Sentinel Security Life has been based in Utah since 1948 and is currently rated B++ by AM Best. Every annuity can be different, even from state-to-state. Here were my highlights:
- Issue date: 9/30/2015
- Amount invested: $10,000 (minimum $2,500)
- Rate guarantee: 3.10% for 5 years
- Free look period: 30 days (you can get a refund within this period).
- Early Surrender Charge period: 5 years
- Market Value Adjustment (MVA) period: 5 years
Basically, there are big penalties if I withdraw earlier than the 5 year period, but none as long as I don’t touch it for those 5 years. This limited liquidity is a part of the reason for the higher interest rates than other products. The main reason I picked this annuity is that it had one of the highest 5-year rates for an insurer rated B+ or higher (“Secure” by AM Best). The 5-year term made it easy to compare rates against either bank CDs or Treasury bond rates. The 5-year term would also be potentially useful for creating an annuity ladder – keep buying one every year, and you’ll eventually have the improved liquidity of an annuity maturing every year.
Purchase process. As noted previously, I went with Stan the Annuity Man. The details are a bit fuzzy as it was five years ago now, but basically his office sent over some snail mail paperwork and I returned it with a paper check. You get a booklet with the annuity contract, a glossy brochure, etc.
Ownership experience. Here is how this annuity balance should grow (compounding tax-deferred) by year:
This is pretty much how it worked out for me from September 2015 to September 2020. I basically did nothing for 5 years. It was very nice and quiet! No daily stock quotes, not even monthly statements. I only received a paper statement once a year with my updated balance. There was no additional junk mail or telephone solicitations. Here was my final statement for September 2020:
Renewal process. At the time of renewal, I received e-mail and phone reminders from Stan. I decided to just go with another 5-year term with Sentinel at 3.35% as it was still a top rate and it required no additional paperwork. I have been tracking the rates loosely, and the rate on this annuity was actually around 4% during much of 2019, but at the time of renewal it had gone down to 3.35%. As of this writing, the rate is down to 3.15% and is scheduled to drop further to 3.00% as of October 30th, 2020. I could have also exchanged into another annuity from a completely different insurer, which probably would have required a bit more paperwork.
Going forward. I intend to keep renewing at 5-year intervals to a competitive 5-year MYGA until at least I reach age 59.5 to avoid the 10% IRS penalty. The balance gets to grow and compound tax-deferred until withdrawal, and I treat it as part of my bond allocation. Eventually, I will try to time the withdrawals during a period of lower income to minimize the tax hit. I could also chose to convert it into a single-premium immediate annuity (SPIA) and create a lifetime income stream. As of right now, I’m not sure if I will be buying more. It depends on when my CD ladder matures and the competition at that time. I will have to weigh the higher rates and tax-deferral advantages against the added complexity, liquidity concerns, and non-zero default risk.
This was my thinking process as a DIY investor. I am not an insurance professional or investment advisor. This is a small portion of my portfolio and it may or may not be the right product for your situation.
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Thank you very much for your posts explaining the MYGA. They were helpful, and a nice reference for me. Your posts kind of take the mystery out of the purchase when you see the actual statements, with the step by step of buying and renewing.
I just purchased a 5-year MYGA through Blueprint Income. I’m at the final waiting for the insurance company (Americo) to issue my contract. Only complaint, the process has taken longer than I expected or wanted – sent the initial paperwork/application and was received on 9/26/2020 – funds requested from my brokerage on 10/23/2020 and still no final issuance of the contract.
I was advised that because of the rate 3.20%/5 yrs. the company was back-logged. Believe I could have helped the process if I would have sent Blueprint Income a paper check directly. I didn’t understand or know Chas. Schwab would send a paper check via the U.S. Mail. Overall quite a long time to not have my money working for me.
@Evelyn – Thanks for sharing your experience – I’m afraid I am not sure if that is within the norm or not. I don’t remember how long mine took to issue. I would hope that Blueprint Income could provide you with a good explanation and set the proper expectations.
Quick follow-up regarding my Americo MYGA – no it still hasn’t been issued. BluePrint Income explained Americo has been having difficulty keeping up because of the 3.20% rate, plus many were trying to beat the rate drop to 3.05% at the end of Oct. Americo received the funds, and I have been earning interest since the date they received the funds. Hopefully the policy will be issued soon. BluePrint assured me they were well aware of the situation – if I had any reservations they would be happy to refund my money.
Evelyn , your application seemed to be taking longer than expected.
My second Americo MYGA went pretty fast. Application submitted 9/13, policy issued 9/22, policy received in the mail 10/8.
Hello Johnson,
Have you looked into this company? http://www.dcfannuities.com The company says they offer a return of up to and maybe over 5%? I’m not sure if that is accurate.
From a quick look, it appears that that site sells annuities focused on income. When it comes to income or immediate annuities, you should always be wary of high interest rates that count return of principal as part of your “return”. This applies to all annuity sellers, not any specific site.
If you give them $100,000 and then they give you $5,000 in annual income, part of that is simply your money being returned to you! Yet by their rules, they are allowed to call that a “5% return”.
Follow-up: I also saw that they sell fixed indexed annuities (FIAs). They usually promise “market growth potential” with “downside protection”. I don’t like FIAs. I would never recommend one to a family member. They are in the “might do” category, not the “will do”. They use a formula that supposedly tracks the S&P 500 or similar market index, but almost always exclude dividends which is a big chunk of your total return.
They are too vague and complex for me. Why? This is the biggest tell: You can’t compare 100 of them side-by-side, as you can with MYGAs and SPIAs!
Ok, one more reply! DCFAnnuities appears to have a bunch of one-off annuities that are being sold by other individual annuity-holders trying to get out of their current annuities who probably “need cash now!” This might provide some buying opportunities, if you know what you are doing. I like that their inventory is visible to the public.
I’ve read the statement a few times, but the market value adjustment confuses me. If you held the annuity for the entire five years, why is your surrender value not equal to your contract value? If you chose not to renew this policy, it appears that you would not get the full contract value as your proceeds.
Hi Jonathan,
If you buy the annuity and are a resident of Ca when you buy it it’s only protected up to $80,000.
But if you buy it in New York and are a resident when you buy it it’s protected up to $500,000.
Annuities aren’t a good choice to begin with.