MYGA Ladder Cash Out Strategy

Hi there, Stan The Annuity Man, America's Annuity Agent licensed in all 50 states. I'm so glad you joined me today because this topic originated from a client who, when he first explained it to me, had me doing a Scooby-Doo moment. I was like, "Huh?" But the more I listened, I thought, "Okay, that makes sense." Since then, more than a handful of people have utilized the strategy after I told them about it, and a few others have proactively talked to me about it. It's called the MYGA Ladder Cash Out Strategy. We're going to dive into that after this.

Breaking Down the MYGA Ladder Cash Out Strategy

Okay, let's break down the MYGA Ladder Cash Out Strategy. MYGA is the annuity industry's version of a CD: a Multi-Year Guarantee Annuity. If you visit my site at The Annuity Man, we have a live feed where you can input your state and duration to see the guarantees for that specific period. Don't overcomplicate it—consider it the annuity industry's version of a CD.

A MYGA Ladder means you're buying different durations. For example, let’s say you have $300,000. You could create a MYGA Ladder by purchasing a three-year MYGA for $100,000, another three-year MYGA for $100,000, a five-year MYGA for $100,000, and a seven-year MYGA. That’s laddering—having money come due at different times. The "cash-out" part is where things get interesting.

Understanding the Cash-Out Process

So, we have MYGAs, and we have ladders. Now, what’s the cash-out? Many of you out there have specific needs for lump sums at certain times. Everyone's situation is different—annuities either fit or don't—but they come with contractual guarantees. If you need those guarantees, we can explore unique strategies to see if they fit your needs.

This particular gentleman wanted lump sums at specific times in his life, such as after three years, five years, seven years, and ten years. So, we bought those four durations: 3, 5, 7, and 10 years, and we split the money evenly. Instead of moving the money back to wherever it came from (an IRA, non-IRA, Roth IRA) or rolling it to another MYGA, he decided, "No, Stan The Annuity Man, send me the cash. I want the annuity company to send me the proceeds."

At the end of year three, he didn’t touch the interest. There are MYGAs that let you withdraw the interest or take 10% annually, but he wanted the interest to compound. At the end of each duration, he wanted a check sent to him, with the money going to a specific place. The same process applies to the five-year, seven-year, and ten-year MYGAs. That’s the MYGA Cash Out Laddering Strategy.

Is This Strategy Right for You?

It’s pretty interesting, and it might make sense in certain situations. At the time of this blog, MYGA rates are very competitive. Compared to CDs—which we love, but don’t sell—if your duration is less than three years, buy CDs at the bank or through large online firms. However, if you're locking in for more than three years, say three, five, seven, or ten years, then MYGAs generally offer the highest contractual guaranteed yield for those durations.

This might work for you if you have a specific goal, as this gentleman did, and you want to use the MYGA Cash Out Strategy. Let’s look at a couple of scenarios.

Non-Qualified Accounts vs. IRAs

If you’re using IRA money, there’s no double tax deferral; it’s already tax-deferred. However, in many cases, people use the MYGA Cash Out Strategy to obtain non-qualified (non-IRA) money. Why is that important? Great question!

With CDs in a non-IRA account, you must pay taxes on the interest earned every year. But with MYGAs, the interest grows tax-deferred. This doesn’t necessarily make MYGAs better than CDs, but in a non-qualified account, you’re deferring taxes and letting the interest grow and compound tax-deferred. When you reach the end of the duration and cash out, you pay taxes on the interest earned.

Flexibility in the MYGA Ladder

Now, let’s talk about flexibility. You're not locked into cashing out at those points if you go into a four-pronged ladder—say 3, 5, 7, and 10 years. When you get to the end of each duration, my team will reach out to you 60 days prior to ask, "What do you want to do?" You might get to the three-year duration and decide, "Yes, send me the money as planned."

Then, we'll call you again when you reach the five-year duration. You might decide, "No, I don’t want to cash it out. Let’s roll it over to another higher-yielding MYGA." This gives you flexibility, even though you know exactly what you’ll have at the end of each term.

Conclusion

So, I hope you learned something new today. My job, as Stan The Annuity Man, is to educate and entertain—to put information in your head about how these products can contractually work for your situation because there’s no one-size-fits-all.

When you visit The Annuity Man, and book a call, you’ll likely speak with someone on my team. You might get me—but that’s a rare event! Either way, we’re going to listen to you and find the best solution for you. I encourage you to run quotes using our calculators, and watch/read the available resources. It’s for you, the consumer, not for agents or advisors. We work with almost every carrier to get the highest contractual guarantee quotes because these are commodities, and you own annuities for what they will do, not what they might do. And what the will do is the contractual guarantee.

That’s the MYGA Cash Out Laddering Strategy—pretty unique, pretty cool. Kudos to the clients who shared this with me. I’m always thinking, but I also learn from others. And this one really makes sense.

Thanks for joining me. My name is Stan The Annuity Man, and I’ll see you next time!