Traditional or Reverse MYGA Ladder Strategies: Shootin' It Straight With Stan

I'm your host, Stan, the Annuity Man, America's annuity agent, licensed in all 50 states. Today's topic is traditional vs. reverse MYGA ladder strategies. I will explain both so you can understand the differences and benefits.

Understanding MYGAs

MYGAs, or multi-year guaranteed annuities, are the annuity industry's version of a CD. Life insurance companies issue these annuities, providing a guaranteed yield for a specific period of time. If you want to see your state's best live feed of MYGA rates, visit The Annuity Man. You can browse and compare rates without needing to sign up.

Traditional MYGA Laddering

Traditionally, when we talk about laddering MYGAs, we're referring to a short-term ladder strategy, say, a three-year, four-year, or five-year ladder. Why do we use this strategy? We're hoping rates will rise. The idea is to have money coming due when rates increase so we can lock in those higher rates. The principle is the same whether you're laddering CDs, bonds, or MYGAs.

The Reverse MYGA Ladder

Since interest rates started rising in October 2022, I've been encouraging people to consider reverse MYGA laddering. The key advantage of MYGAs over CDs and bonds is that MYGAs are not callable.

What does that mean? Once a MYGA is issued, the yield is locked in for the term, and the annuity company cannot take it back. For example, if rates drop three percentage points five years from now, and you've locked in a nine-year MYGA, the annuity company cannot say, "We're lowering the rate, send us your money."

However, the issuer can call back the money with CDs and bonds if rates fall. With MYGAs, once that rate is locked in, it’s guaranteed.

Why Reverse Laddering Works

Reverse laddering is about locking in rates before they fall. Instead of using a traditional three, four, or five-year MYGA ladder, you might use a 10, seven, and five-year ladder. The idea is to lock in the higher rates because MYGAs are non-callable. If rates fall, you're in a better position since you've secured those high yields.

Choosing Your MYGA Strategy

When choosing how to buy MYGAs, you have options. You could go with a "lock and load" strategy, where you're not planning to take any interest out—just let it grow and compound. MYGAs are flexible; you can use them with IRA, non-IRA, or Roth IRA money. The contractual guarantees remain the same.

Now, imagine you locked in a 10-year MYGA at a high rate. If rates drastically drop, you'll be glad you did. Of course, some people might worry, "What if rates go up?" Well, if rates rise like they did during the Jimmy Carter era, the country’s debt might become unmanageable, making higher rates unsustainable. If you're concerned about this, locking in rates now while they are still high is a good way to protect your principal and secure a guaranteed yield.

Going Longer on the Yield Curve

A lot of people are hesitant to go beyond five years. I understand; it's your money, and you should feel comfortable with your decisions. But I encourage you to consider locking in longer-term MYGAs, especially if you believe that rates will eventually fall. If five years is your maximum, maybe consider seven. Or, if seven feels too long, perhaps 10 years would make more sense.

You could split the difference for those who find it difficult to commit to a longer duration. For instance, split your investment between a five-year MYGA and a 10-year MYGA. It gives you a balance between security and flexibility.

Timing the Market

I know many people want to time the market perfectly—find the sweet spot where the rates are at their peak. The truth is, it’s impossible to time the market with precision. Rates could go up or down, but no one can predict it with certainty. That’s why reverse laddering makes sense now that rates are at a higher point.

MYGA Strategies in Practice

MYGAs can be used in different ways. Some allow you to take penalty-free withdrawals (e.g., 10% or 5% of your balance each year). These details are available at The Annuity Man.

However, the most important concept you should consider is locking in longer-term MYGAs. They are not callable, which gives you the advantage of knowing your rate is locked in no matter what happens in the market. With CDs and bonds, the risk is that they could be called when rates fall, leaving you without your guaranteed return.

Could Rates Go Up?

Of course, rates could go up from here. It would surprise me if they drastically increased, but if they did, that would be great. You’ll get to buy higher rates in the future. But the point of this is that you’re locking in rates before they potentially go down, and that's why reverse laddering is an option you should consider.

Reverse Laddering Strategy Example

So, let's reverse the ladder: Instead of using the traditional three, four, or five-year strategy, consider a 10, nine, seven or 10, nine, eight, seven ladder. It might feel unconventional, but locking in a longer-term MYGA is a solid strategy in today’s market.

Conclusion

MYGAs are a great way to protect your principal and secure a guaranteed rate of return, and reverse laddering can help you take advantage of current high rates. If you’re interested in exploring this strategy, visit my website at The Annuity Man and schedule a call with us. 

Thanks for tuning in to Shootin' It Straight With Stan. I'll see you next time.