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 Oxford Life Multi-Select MYGA, exploring its key features, benefits, and considerations, as well as the implications of adding the GLWB option for investors seeking a more comprehensive retirement income solution.
The review of the Oxford Life Multi-Select 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 Oxford Life Multi-Select 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 Oxford Life Multi-Select MYGA, and then we will discuss each point in detail.
| Product Name | Multi-Select MYGA |
|---|---|
Issuing Company | |
AM Best Rating | A (3rd of 13 ratings) |
Withdrawal Charge Period(s) | 3 to 10 years |
Surrender Charge Schedule | Varies as per withdrawal charge period |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $10,000 |
Plan Types |
|
Free Withdrawals | 10% of the annuity’s Accumulated Value per year |
Death Benefit | Upon the annuitant’s death, the beneficiary will get full Account Value without any surrender charges |
Free Benefits |
|
Riders | Optional, paid guaranteed lifetime withdrawal benefit (GLWB) |
Surrender Value | Account Value less any withdrawal charges/ MVA |
RMD Friendly | Yes |
The features of the Oxford Life Multi-Select 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 Oxford Life Multi-Select MYGA policy work?
The Oxford Life Multi-Select 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 10 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 Oxford Life Safe Harbor Guarantee rate sheet (as of October 2024) to understand how the earnings are determined.
- 3-Year Term: 4.30%
- 4-Year Term: 4.75%
- 5-Year Term: 4.70%
- 6-Year Term: 5.10%
- 7-Year Term: 5.00%
- 8-Year Term: 5.05%
- 9-Year Term: 4.95%
- 10-Year Term: 4.95%
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 Oxford Life Multi-Select 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 Oxford Life Multi-Select MYGA 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. However, many MYGAs, including Oxford Life's, often allow a penalty-free withdrawal of a certain percentage of the account value each year, typically up to 10%.
- Optional GLWB Feature: For those seeking a reliable income stream in retirement, the Multi-Select MYGA offers an optional Guaranteed Lifetime Withdrawal Benefit (GLWB). This feature allows policyholders to convert their annuity into a consistent lifetime income stream, ensuring they have income stability throughout retirement.
To understand how the Oxford Life Multi-Select MYGA works, let’s look at a hypothetical example:
Suppose an investor, Jane, is 60 years old and is planning to retire soon. She wants a low-risk investment to grow her funds predictably over time. After researching her options, Jane decides to invest $100,000 in the Oxford Life Multi-Select MYGA with a 5-year term, which offers a fixed interest rate of 4.70% for that period.
1. Interest Accumulation
With her $100,000 initial investment, Jane can calculate her future value at the end of the 5-year term using the 4.70% annual interest rate:
- Year 1: $100,000 * (1 + 4.70%) = $104,700
- Year 2: $104,700 * (1 + 4.70%) ≈ $109,613
- Year 3: $109,613 * (1 + 4.70%) ≈ $114,742
- Year 4: $114,742 * (1 + 4.70%) ≈ $120,093
- Year 5: $120,093 * (1 + 4.70%) ≈ $125,677
After five years, her investment would grow to approximately $125,677, thanks to the fixed annual interest rate of 4.70%.
2. Principal Protection
Because the Oxford Life Multi-Select MYGA is a fixed annuity, Jane’s initial $100,000 is fully protected from market losses. Regardless of what happens in the stock or bond markets, her principal remains secure, and she continues to earn the 4.70% fixed rate annually.
3. Withdrawal Options at the End of the Term
At the end of the 5-year term, Jane has several choices:
- Withdraw the Full Amount: Jane can withdraw the full $125,677 without any surrender charges, giving her access to her accumulated funds.
- Renew for Another Term: Jane can choose to renew her MYGA for another term with Oxford Life, though the new interest rate will depend on the prevailing rates at that time.
- Roll Over to Another Financial Product: Jane can transfer her funds into another investment or retirement product, if she desires.
Riders
The Guaranteed Lifetime Withdrawal Benefit (GLWB) rider, available with the Oxford Life Multi-Select MYGA, is designed to provide policyholders with a guaranteed income stream for life. This feature is especially beneficial for retirees, offering peace of mind through income that cannot be outlived, regardless of the annuity’s underlying cash value. This lifetime guarantee offers a robust safety net, supplementing other retirement income sources like Social Security and pensions. For many retirees, this feature ensures a predictable and lasting income, critical in an era where longevity risk is a growing concern.
The GLWB is structured to allow policyholders flexibility in their retirement planning. Payments from the GLWB can be started, paused, and resumed as needed, without penalty. This flexibility allows individuals to adapt their income to shifting needs, whether covering unanticipated expenses, adjusting to lifestyle changes, or supplementing other income sources. The ability to start and stop income without affecting the GLWB’s integrity adds a level of control and responsiveness that’s rare in guaranteed income products.
A key element in the GLWB’s structure is its age-based payout factor, which determines the percentage of the annuity value that can be withdrawn annually. The longer a policyholder defers starting the GLWB income, the higher the payout factor will be. For example, a 60-year-old policyholder who waits until the tenth policy year to begin GLWB payments might lock in a payout factor of 8.05%. On a $150,000 deposit, this translates into an annual lifetime income of approximately $12,075. Conversely, starting GLWB payments earlier, such as in the fifth policy year, would use a lower payout factor, around 5.47%, resulting in an income of $8,205 on the same deposit amount.
Additionally, the GLWB offers a choice between single-life and joint-life payout options, catering to both individual and couple scenarios. The single-life option bases the payout on the policyholder’s lifetime alone, while the joint-life option provides income until the last surviving spouse’s death. In joint cases, the payout factor is based on the age of the younger spouse.
The GLWB is also RMD-compatible for those holding qualified accounts. Once a policyholder reaches the Required Minimum Distribution (RMD) age, they can take the larger of the GLWB annual income or the RMD amount, without incurring surrender charges. It’s important to note that the GLWB is not immune to reductions from additional withdrawals. For instance, if a policyholder takes a 10% additional withdrawal from the MYGA’s accumulation value, the GLWB payment will also decrease by 10%.
Fees: The GLWB rider does come with an annual fee, typically 0.50% of the MYGA’s accumulation value. This fee is charged annually regardless of whether GLWB payments have started. It’s deducted directly from the policy’s value, making it easy to manage and predictable over time.
To better understand how the Guaranteed Lifetime Withdrawal Benefit (GLWB) works, let’s look at a detailed example scenario that highlights the income potential, flexibility, and longevity protection provided by this optional rider.
Example Scenario:
Meet John and Lisa, a retired couple in their early 60s who are planning to add an income layer to their retirement plan. They decide to invest $200,000 in the Oxford Life Multi-Select MYGA with the GLWB rider, aiming to maximize their future income by delaying withdrawals for a period.
1. Initial Investment and Deferral Period
John and Lisa are both 68 years old when they make their initial deposit of $200,000. They decide to defer GLWB withdrawals for 9 years, allowing the payout factor to increase over this period. By waiting, they lock in a higher payout percentage, ultimately providing a larger annual income. This approach is especially helpful since they do not need the income immediately and can let the MYGA grow.
Based on the GLWB payout schedule, a 9-year deferral would give John and Lisa a payout factor of 8.54% by the time they reach 77, enabling them to maximize their income from the GLWB rider.
2. Annual Lifetime Income Calculation
At age 77, John and Lisa decide to begin their GLWB payments. Using the 8.54% payout factor, their annual guaranteed income is calculated as follows:
This calculation means that John and Lisa will receive $17,080 per year for life, regardless of market conditions or the remaining value in their MYGA account. This income continues even if their cash surrender value depletes, ensuring a secure income stream for as long as either John or Lisa lives.
The table(s) below illustrates how the payout factor grows with a deferred start, showing various income scenarios based on different deferral periods for single-life and joint-life payout.
3. Single vs. Joint Life Option
Since John and Lisa chose the joint-life payout option, their income will continue until the last surviving spouse passes away. This ensures that both John and Lisa can rely on the income even if one of them passes away first, offering peace of mind that their income is protected for both lifetimes. The joint-life option is calculated based on the younger spouse’s age, providing a slightly lower payout factor than a single-life option but extending the income over both of their lives.
4. Additional Withdrawals Impact
Suppose that after 5 years of receiving the GLWB income, John and Lisa encounter an unexpected expense and need to take an extra 10% withdrawal from their remaining accumulation value in the MYGA. This additional withdrawal will proportionally reduce their future GLWB income by 10%.
In this case, their annual GLWB income would adjust as follows:
After the additional withdrawal, John and Lisa’s lifetime income reduces to $15,372 per year. While they still receive income for life, this reduction encourages them to be cautious with additional withdrawals, as it directly impacts their future income from the GLWB.
5. GLWB Rider Fee
The GLWB rider incurs an annual fee of 0.50% of the MYGA’s accumulation value, charged annually. For instance, if their MYGA’s accumulation value remains around $200,000 during the early years, the fee would amount to:
200,000×0.005=1,000200,000 \times 0.005 = 1,000200,000×0.005=1,000
This $1,000 fee is deducted each year, even if John and Lisa have not yet begun GLWB payments. Once GLWB payments start, the fee continues to be charged but reduces proportionally with the MYGA’s accumulation value.
Also, as with most annuities, the Oxford Life Multi-Select MYGA includes built-in nursing home and terminal illness waivers. Unique to Oxford Life, it also offers a Home Health Care benefit, providing additional flexibility for policyholders.
Nursing Home Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is confined to a Qualified nursing home for at least 90 consecutive days. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
Terminal Illness Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is diagnosed with a terminal illness. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
Home Health Care Benefit: If the policyholder is first diagnosed as chronically ill more than one year after the policy date and has been receiving home health care for the previous 90 days, they may request surrenders or withdrawals from the policy without incurring any surrender or withdrawal charges.
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 Oxford Life Multi-Select MYGA.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
10-yr | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0% |
9-yr | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 3% | 2% | 0% | |
8-yr | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 3% | 0% | ||
7-yr | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 0% | |||
6-yr | 10% | 9% | 8% | 7% | 6% | 5% | 0% | ||||
5-yr | 10% | 9% | 8% | 7% | 6% | 0% | |||||
4-yr | 10% | 9% | 8% | 7% | 0% | ||||||
3-yr | 10% | 9% | 8% | 0% |
Market Value Adjustments - In case you need to surrender your policy, a Market Value Adjustment (MVA) will be applied to the portion of the withdrawal or surrender that exceeds the free withdrawal amount during the withdrawal charge period.
Contract/Administrative Charge
The Oxford Life Multi-Select MYGA levies no annual contract or administrative fees. However, if you opt for the guaranteed lifetime withdrawal benefit (GLWB) rider, an annual charge of 0.50% 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.
Oxford Life Insurance Company
Oxford Life Insurance Company, founded in 1965, specializes in offering life insurance and annuity products primarily tailored to the senior market. As a subsidiary of U-Haul Holding Company, Oxford Life focuses on helping individuals achieve their financial goals through products that provide stability and support for retirement planning.
The company offers a range of annuities, including Multi-Year Guaranteed Annuities (MYGA) and Indexed Annuities. Some notable products include the Multi-Select MYGA, which provides guaranteed interest rates for periods ranging from 3 to 10 years, and allows penalty-free withdrawals of up to 10% of the contract's value after the first year. Additionally, indexed annuity offerings like Select Series and Select Series come with premium bonuses to enhance initial account values, making them competitive choices for those seeking long-term growth with a guaranteed income stream during retirement.
Oxford Life operates in 48 states and the District of Columbia, offering broad availability of its products. One of Oxford Life's standout features is its home health care benefit, which waives surrender charges if the policyholder requires home health care, adding an additional layer of flexibility to its annuities.
Oxford Life has built a strong reputation for customer service and financial stability, earning an A (Excellent) rating from AM Best, reflecting its solid financial performance and its ability to meet policyholder obligations.
Conclusion
The Oxford Life Multi-Select 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. Oxford Life Insurance Company, known for its focus on retirement and wealth preservation solutions, offers a range of annuity products aimed at providing income security for policyholders. The Multi-Select MYGA is particularly appealing to individuals nearing retirement or those in retirement who prefer predictable income growth without exposure to market volatility.
A key aspect of the Oxford Life Multi-Select MYGA is its fixed, guaranteed interest rate over the selected term, available in multi-year options such as 3 to 10 years. This structure makes the MYGA a straightforward option, providing peace of mind through consistent returns and the advantage of tax-deferred growth, helping investors accumulate more over time without immediate tax liabilities.
Adding flexibility to the MYGA is the optional Guaranteed Lifetime Withdrawal Benefit (GLWB), designed for those who want to secure a reliable income stream for life. The GLWB option allows policyholders to turn their accumulated funds into a lifetime income source, offering further stability in their financial 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.