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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 Royal Neighbors of America Multi-Year Guaranteed Annuity (MYGA), exploring its key features, benefits, and considerations.
The review of the Royal Neighbors of America MYGA will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- Who Is This Annuity Suitable For?
- Who Might Find This Annuity Less Suitable?
- Company Details
- Conclusion
Product Description
The Royal Neighbors of America 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 Royal Neighbors Multi-Year Guaranteed Annuity (MYGA), and then we will discuss each point in detail.
| Product Name | Royal Neighbors MYGA |
|---|---|
Issuing Company | Royal Neighbors of America |
AM Best Rating | A (3rd of 13 ratings) |
Withdrawal Charge Period(s) | 3, 5, and 10 year |
Surrender Charge Schedule | Varies as per withdrawal charge period |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $10,000 |
Plan Types |
|
Free Withdrawals | Interest Only |
Death Benefit | Upon the annuitant’s death, the beneficiary will get full Account Value without any surrender charges |
Additional Features | Option to continue with the MYGA for the same guaranteed period after the initial guaranteed period ends, but at the new rates available at that time |
Riders | Free Member Emergency Access Rider |
Surrender Value | Account Value less any withdrawal charges/MVA |
RMD Friendly | Yes |
The features of the Royal Neighbors of America Multi-Year Guaranteed Annuity (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 Royal Neighbors of America MYGA policy work?
The Royal Neighbors of America 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 Royal Neighbors of America MYGA Annuity rate sheet (as of December 2024) to understand how the earnings are determined.
- 3-Year Term: 4.60%
- 5-Year Term: 4.95%
- 10-Year Term: 5.00%
Please note that these rates apply to the Standard Band (minimum $10,000). For the High Band ($100,000+), the rate chart is as follows. Higher bands qualify you for higher interest rates. Note that the Royal Neighbors of America MYGA is available in 3, 5, and 10-year terms.
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 Royal Neighbors of America 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 Royal Neighbors of America 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 (but not Royal Neighbors) often allow a penalty-free withdrawal of a certain percentage of the account value each year, typically up to 10%.
To understand how the Royal Neighbors of America MYGA works, let’s look at a hypothetical example:
Suppose an investor, Claire, 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, Claire decides to invest $100,000 in the Royal Neighbors of America MYGA with a 5-year term, which offers a fixed interest rate of 4.95% for that period.
1. Interest Accumulation
With her $100,000 initial investment, Claire can calculate her future value at the end of the 5-year term using the 4.95% annual interest rate:
- Year 1: $100,000 * (1 + 4.95%) = $104,950
- Year 2: $104,950 * (1 + 4.95%) ≈ $110,145
- Year 3: $110,145 * (1 + 4.95%) ≈ $115,597
- Year 4: $115,597 * (1 + 4.95%) ≈ $121,319
- Year 5: $121,319 * (1 + 4.95%) ≈ $127,325
After seven years, her investment would grow to approximately $127,325, thanks to the fixed annual interest rate of 4.95%.
2. Principal Protection
Because the Royal Neighbors of America MYGA is a fixed annuity, Claire’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 4.95% fixed rate annually.
3. Withdrawal Options at the End of the Term
At the end of the 5-year term, Claire has several choices:
- Withdraw the Full Amount: Claire can withdraw the full $127,325 without any surrender charges, giving her access to her accumulated funds.
- Renew for Another Term: Claire can choose to renew her MYGA for another term with Royal Neighbors, though the new interest rate will depend on the prevailing rates at that time.
- Roll Over to Another Financial Product: Claire can transfer her funds into another investment or retirement product, if she desires.
Riders
The Royal Neighbors of America MYGA Annuity does not offer any optional riders that policyholders can add for an additional cost. However, it provides a unique approach to policy enhancements by incorporating a Member Emergency Access Rider at no additional cost to the policyholder. This rider is particularly beneficial for providing financial relief during unexpected crises without the need for pre-purchased additional coverage.
Activation and Benefits:
- Eligibility for Withdrawal: The rider becomes actionable after the first Certificate Year. It allows the owner to make a one-time withdrawal of up to 50% of the account value. This value is calculated based on the account status at the beginning of the Certificate Year during which the withdrawal occurs, with a maximum limit of $250,000.
Qualifying Emergency Events: The rider covers a variety of distressing situations that might necessitate urgent access to funds:
- Loss of the owner's primary residence due to natural disasters, fire, or unexpected accidents.
- Similar loss affecting the owner's business.
- Death within the owner's immediate family.
- Involuntary unemployment of the owner lasting over 90 days.
- Accidental severe physical injuries to the owner.
- Extended hospitalization (five days or more) due to illness or accident.
Comparison with Industry Standards:
- It's noteworthy that while many annuity contracts offer waivers for complete withdrawals under conditions like long-term care needs or terminal illness, the Royal Neighbors of America opts for a broader, albeit capped, emergency access framework. This can provide substantial financial support during various crises without necessitating the full liquidation of the annuity's value.
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 Royal Neighbors of America MYGA.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
10-yr | 9% | 8% | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0.5% | 0% |
5-yr | 9% | 8% | 7% | 6% | 5% | 0% | |||||
3-yr | 9% | 8% | 7% | 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 Royal Neighbors of America MYGA levies no annual contract or administrative fees.
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.
Suitability of the Royal Neighbors of America MYGA Annuity
When considering the Royal Neighbors of America MYGA (Multi-Year Guaranteed Annuity), it is essential to assess its suitability for potential policyholders. This annuity is designed to meet the needs of individuals seeking stable, predictable growth of their retirement funds without exposure to market volatility. Here, we explore various aspects that make this annuity a compelling choice for certain investors.
Ideal Candidates for the Royal Neighbors MYGA Annuity
Conservative Investors: The MYGA Annuity is particularly suited for conservative investors who prioritize the preservation of capital over high-risk opportunities for gain. Given its fixed interest rate, the MYGA provides a guaranteed return, making it an attractive option for those averse to the uncertainty of stocks or mutual funds.
Retirement Planning: Individuals planning for retirement will find the guaranteed growth rate appealing as it facilitates predictable financial planning. This annuity can be a cornerstone of a conservative retirement strategy, providing a steady income stream that complements other retirement funds like Social Security or pensions.
Risk Management: For those looking to balance a more aggressive investment portfolio, the Royal Neighbors MYGA offers a low-risk counterbalance that can help manage overall investment risk. Its guaranteed return provides a safety net against market fluctuations that might affect other investment vehicles.
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.
Royal Neighbors of America
Royal Neighbors of America (RNA) is a fraternal benefit society founded in 1895 by nine pioneering women in Illinois. Established to provide financial protection and social support to women who were largely excluded from insurance markets at the time, RNA was among the first insurers to offer life insurance to women at the same rates as men and to cover women in hazardous occupations such as nursing and teaching.
Headquartered in Rock Island, Illinois, RNA operates as a not-for-profit organization, offering a range of life insurance products, annuities, and individual retirement accounts to over 250,000 members across the United States. The society also provides various member benefits, including scholarships, grants, discounts, and community programs. In 2023, RNA reported a record $31.2 million in social good impact, reflecting its dedication to community engagement and support.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A |
BBB | A+ |
As of December 2023, some of the financial highlights for Royal Neighbors of America include the following:
- $1.18 trillion in Total Assets
- $178.65 million in policyholder surplus
- $122.65 million in premium income
- $900.5 million in insurance reserves and claims
- $1 million in net income
Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with Royal Neighbors of America.
Conclusion
With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a retirement corpus that can grow safely and steadily and have the ability to provide a fixed stream of income during the retirement years. This not only helps you mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.
The Royal Neighbors of America Multi-Year Guaranteed Annuity (MYGA) offers a decent solution for individuals seeking a secure and stable investment for their retirement savings. It provides a guaranteed interest rate, ensuring predictable financial growth and capital preservation, crucial for those averse to market volatility. With its tax-deferred growth, investors can maximize their earnings without immediate tax burdens, enhancing the investment's overall efficiency. Additionally, the unique Member Emergency Access Rider grants policyholders a safety net by allowing access to funds during critical personal emergencies, further enhancing the product's appeal.
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.