Introduction
A Multi-Year Guaranteed Annuity (MYGA) is a type of fixed annuity that provides a guaranteed interest rate for a specified number of years, typically ranging from 3 to 10. Unlike variable annuities, where returns are linked to market performance, MYGAs offer a steady, predetermined return over the selected term. This feature makes them popular among conservative investors who seek predictable, low-risk growth of their assets, particularly in a retirement context.
MYGAs work similarly to Certificates of Deposit (CDs) in terms of fixed interest rates and defined maturity periods, but they offer additional benefits that make them attractive as retirement planning tools. MYGA funds grow on a tax-deferred basis, meaning that investors do not pay taxes on their gains until they begin making withdrawals. This allows the investment to compound more effectively over time, providing a distinct advantage over taxable investments with similar yields. Additionally, MYGAs offer the benefit of principal protection, ensuring that the initial investment is safe from market fluctuations.
This review will dive into the Atlantic Coast Safe Harbor MYGA, exploring its key features, benefits, and considerations, as well as the implications of adding the death benefit option for investors seeking a more comprehensive retirement income solution.
The review of the Atlantic Coast Safe Harbor MYGA will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- What Makes This Product Stand Out?
- What I Don't Like
- Company Details
- Conclusion
Product Description
The Atlantic Coast Safe Harbor Multi-Year Guaranteed Annuity (MYGA) is a financial product designed to meet the needs of conservative investors seeking a stable, guaranteed return over a specific period.
Let’s have a look at the high-level fine print of the Atlantic Coast Safe Harbor MYGA, and then we will discuss each point in detail.
| Product Name | Safe Harbor MYGA |
|---|---|
Issuing Company | Atlantic Coast Life Insurance Company |
AM Best Rating | B++ (5th of 13 ratings) |
Withdrawal Charge Period(s) | 3 to 20 years |
Surrender Charge Schedule | Varies as per withdrawal charge period |
Maximum Issue Age | 90 Years (75 years for 20 year guarantee period) |
Minimum Initial Purchase Amount | $5,000 |
Interest Bonus | Interest Bonus in year 1 for 3, 5, 6, 7, and 10 year guarantee period |
Plan Types |
|
Riders | Optional, paid death benefit rider |
Death Benefit | Upon electing a paid death benefit rider, the beneficiary will receive the full Account Value upon the annuitant’s death without any surrender charges |
Surrender Value | Account Value less any withdrawal charges/MVA |
RMD Friendly | Yes |
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The features of the Atlantic Coast Safe Harbor MYGA remain consistent across all term durations, with the only variations being the interest rates and the withdrawal charge schedule associated with each term.
Product Policy
How does the Atlantic Coast Harbor Guarantee MYGA policy work?
The Atlantic Coast Harbor Guarantee MYGA is structured to provide fixed, predictable growth over a chosen period, making it a suitable option for investors looking for security and stability. This annuity offers term options ranging from 3 to 20 years, with a unique interest rate assigned to each term. These rates ensure that the policyholder knows exactly how much their investment will grow over the selected period.
Let’s have a look at the Atlantic Coast Harbor Guarantee rate sheet (as of October 2024) to understand how the earnings are determined.
In the 3, 5, 6, 7, 10, and 20 year options, the plan offers a 1% bonus for the first year. In most states, these rates translate to the following effective compound rates:
- 3-Year Term: 4.80%
- 5-Year Term: 4.98%
- 6-Year Term: 4.80%
- 7-Year Term: 4.80%
- 10-Year Term: 4.65%
- 10-Year Term: 4.21%
The MYGA’s interest rate is locked in at the start of the contract and remains fixed for the entire term, ensuring a steady accumulation of funds. At the end of the selected period, the policyholder has several options: they may withdraw the accumulated funds, renew for another term (with rates based on prevailing conditions), or roll the funds into another financial vehicle.
Key Mechanics of the Atlantic Coast Safe Harbor MYGA Policy
- Interest Rate Lock: Once the policyholder selects a term, the corresponding interest rate is guaranteed for the duration of that term, providing clear expectations for growth.
- Principal Protection: As a fixed annuity, the Atlantic Coast Safe Harbor guarantees the protection of the principal, meaning that the initial investment is secure and unaffected by market volatility.
- Withdrawal Charge Schedule: The policy includes a withdrawal charge schedule, which varies according to the selected term. If the policyholder needs to access their funds before the term ends, they may incur a penalty.
- Death Benefit: If the optional Death Benefit Feature is not selected, the Death Benefit is equal to the Cash Surrender Value in a lump sum or the Full Account Value paid in annual installments over a 5-year period. If your spouse is named as the sole primary beneficiary, they may choose to become the owner of the contract and continue it for the remainder of the term. Additional payout options may also be available.
Let’s consider an example for the Safe Harbor Annuity with a 7-year term, applying simple interest rates of 6.40% in the first year and 5.40% for each subsequent year.
Suppose an individual invests $100,000 in the Safe Harbor Annuity.
Year-by-Year Breakdown:
Year 1: The interest rate is 6.40%.
- Interest earned = $100,000 × 6.40% = $6,400
- Total value at the end of Year 1 = $100,000 + $6,400 = $106,400
Years 2 to 7: The interest rate is 5.40% each year.
- Annual interest earned = $100,000 × 5.40% = $5,400
Over the next six years, interest accumulates as follows:
- Year 2: $106,400 + $5,400 = $111,800
- Year 3: $111,800 + $5,400 = $117,200
- Year 4: $117,200 + $5,400 = $122,600
- Year 5: $122,600 + $5,400 = $128,000
- Year 6: $128,000 + $5,400 = $133,400
- Year 7: $133,400 + $5,400 = $138,800
Total Value at the End of 7 Years:
After seven years, the annuity grows to a total value of $138,800 based on simple interest rates. The effective compound rate over this period would be approximately 4.80%.
Riders
The Optional Death Benefit Feature in the Atlantic Coast Safe Harbor Annuity enhances legacy planning by providing beneficiaries with greater flexibility and maximized benefits. When selected, this rider waives any Surrender Charges and Market Value Adjustments (MVA) associated with a lump-sum payment upon the Owner's death, enabling beneficiaries to receive the full Account Value without penalties.
The cost of this feature is an annual 0.25% reduction in credited interest. This annual adjustment offers a simple and effective way to protect the legacy left for loved ones, ensuring they can access the full benefits of the annuity without delay or reduction, thereby making it an attractive option for legacy-focused annuitants.
One thing to note is that this annuity does not offer free nursing home and terminal illness waivers, which are commonly included in many other annuities. This means that policyholders facing these situations would not have the option for penalty-free access to funds, a feature often valued for added financial flexibility during difficult times.
Surrender/Early Withdrawal Charge
Should your needs change unexpectedly, and you need to take an excess withdrawal (a withdrawal that is above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies, although certain charges and penalties may apply. Any amount withdrawn in excess of the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for the Atlantic Coast Safe Harbor MYGA.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11-20 |
|---|---|---|---|---|---|---|---|---|---|---|---|
20-yr | 9% | 8% | 7% | 6% | 5% | 5% | 5% | 5% | 5% | 5% | 5% |
10-yr | 9% | 8% | 7% | 6% | 5% | 5% | 5% | 5% | 5% | 5% | |
9-yr | 9% | 8% | 7% | 6% | 5% | 5% | 5% | 5% | 5% | ||
8-yr | 9% | 8% | 7% | 6% | 5% | 5% | 5% | 5% | |||
7-yr | 9% | 8% | 7% | 6% | 5% | 5% | 5% | ||||
6-yr | 9% | 8% | 7% | 6% | 5% | 5% | |||||
5-yr | 9% | 8% | 7% | 5% | 5% | ||||||
4-yr | 9% | 8% | 7% | 5% | |||||||
3-yr | 9% | 8% | 7% |
Market Value Adjustments – If you need to surrender your policy, a Market Value Adjustment (MVA) will apply to any portion of the withdrawal or surrender amount that exceeds the free withdrawal limit during the withdrawal charge period. The Atlantic Coast Safe Harbor MYGA has relatively high surrender charges, particularly in the later years. Unlike most other annuities, which typically feature a gradually decreasing surrender charge over time, this annuity’s schedule maintains a higher charge, with the final reduction set at a 5% surrender charge. This structure may be less favorable for those seeking a more flexible exit strategy over the years.
Contract/Administrative Charge
The Atlantic Coast Safe Harbor MYGA levies no annual contract or administrative fees. However, if you opt for the enhanced death benefit rider, an annual charge of 0.25% applies, which is calculated and deducted from the account value.
Benefits vs. Disadvantages of MYGA Compared to a Traditional Fixed Annuity
MYGAs and traditional fixed annuities both cater to conservative investors but with slightly different structures. MYGAs are ideal for those who want a predictable rate over a fixed term and are comfortable with the limited liquidity during that period. In contrast, traditional fixed annuities may offer a bit more flexibility in terms of rate adjustments or income options but typically lack the defined multi-year guarantee MYGAs provide. Here’s a breakdown:
Benefits of MYGA
Guaranteed Interest Rates for Specific Terms
- MYGA: MYGAs provide a guaranteed interest rate over a fixed term, such as 3, 5, or 7 years, allowing investors to lock in predictable returns for a specified period.
- Traditional Fixed Annuity: Traditional fixed annuities also offer guaranteed interest, but these rates are often set for a shorter duration (e.g., one year) and may reset annually based on prevailing rates.
- Benefit: MYGAs offer more stability over a multi-year horizon, protecting against interest rate fluctuations, which is particularly beneficial in a low or falling interest rate environment
Flexibility with Term Lengths
- MYGA: MYGAs provide the flexibility to choose from different terms (e.g., 3, 5, 7, 10 years), depending on the investor's needs and market outlook.
- Traditional Fixed Annuity: Traditional fixed annuities do not typically offer fixed terms with guaranteed rates over multi-year periods.
- Benefit: MYGAs allow investors to align their investments with specific time horizons, such as short-term goals or bridge periods before retirement.
Disadvantages of MYGA
Interest Rate Risk Over the Long Term
- MYGA: While MYGAs lock in rates for a specific term, they may be less advantageous if interest rates rise significantly during the term, as policyholders are bound to the initial rate until maturity.
- Traditional Fixed Annuity: Traditional fixed annuities may offer rate adjustments periodically, which could benefit policyholders in a rising interest rate environment.
- Disadvantage: MYGAs might not benefit from increasing rates mid-term, whereas traditional fixed annuities may adjust rates periodically, providing some adaptability to market changes.
Lower Growth Potential Compared to Market-Linked Annuities
- MYGA: MYGAs have a fixed interest rate and are not linked to market performance, limiting the growth potential.
- Traditional Fixed Annuity: Similarly, traditional fixed annuities are also fixed, but they may sometimes offer interest rate adjustments that allow for slightly higher yields over time.
- Disadvantage: Both MYGAs and traditional fixed annuities limit growth potential compared to market-linked annuities or other investment options, which may not be ideal for younger investors with higher risk tolerance.
Company Details
You must always keep in mind that, unlike CDs, annuities are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other federal insurance agency. An annuity's "guarantee" is only as strong as the insurance company that issues the annuity, so it is always important to assess the issuing company before buying an annuity.
Atlantic Coast Life Insurance Company
Atlantic Coast Life Insurance Company has been in the business since 1925. It is one of the oldest providers of fixed and fixed-indexed annuities in the US.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | B++ |
Although the rating is not the best, it is not even that bad. The company is privately managed by Advantage Capital post its sale in 2015. It is considered to be strong and stable financially. As of year-end 2022, some of the other financial highlights for Atlantic Coast Life Insurance Company include its:
- $903 million in total sales / direct written premium
- $91.6 million of capital and surplus
- $16.14 million in net operating income
- $693 million in total assets
Conclusion
With advancements in healthcare and technology, the average American now lives longer than ever. Therefore, it’s essential to have a steady income stream that grows safely and can provide guaranteed income during retirement years. This approach not only helps mitigate the risk of outliving your income but also ensures you can maintain a comfortable lifestyle throughout retirement.
The Atlantic Coast Safe Harbor Guarantee Annuity provides a straightforward solution for those seeking secure, tax-deferred growth with guaranteed interest rates. While it offers stable returns and protection against market volatility, certain limitations should be considered, such as its relatively high surrender charges in the later years and the absence of free waivers for nursing home confinement and terminal illness. These factors may impact its flexibility compared to other options. Overall, this annuity is best suited for conservative investors focused on steady growth and principal protection, without the need for frequent access to their funds. It delivers reliable returns for those prioritizing security and stability in their retirement planning.
We understand that choosing the right annuity can be a complex decision, influenced by a myriad of factors such as market conditions, individual financial goals, and evolving life circumstances. To better serve you in this critical decision-making process, we regularly conduct in-depth reviews of various annuity products, examining features, costs, and potential benefits. Dive deeper into our extensive reviews.