MYGA Rates in Tennessee: What to Know Before You Commit

MYGA Rates in Tennessee: What to Know Before You Commit

Thinking about a 6 year MYGA in Tennessee? Here is how these contracts work, what surrender charges cost you, and how to pick the right one.

Full written article: MYGA Rates in Tennessee: What to Know Before You Commit

Tennessee Annuity Rates

Transcript

SPEAKER_01 0:03

Welcome to the Tennessee Annuity Show. I'm Jessica.

SPEAKER_00 0:06

And I'm Caleb. We break down complex annuity products in plain English, fixed annuities, indexed annuities, income annuities, all of it.

SPEAKER_01 0:13

We cover the products, the fine print, and the questions you should ask before you sign anything.

SPEAKER_00 0:18

Quick note before we start: this show is for general information only and is not financial, tax, or legal advice. Annuity guarantees depend on the issuing insurance company's ability to pay claims. Talk with a licensed professional before making decisions about your retirement income.

SPEAKER_01 0:33

Alright, let's get into today's episode. So I had a conversation with my aunt a few weeks ago. She's 68, just sold a rental property, and she's sitting on about $120,000. And she called me and said, Jessica, everyone keeps telling me to look at a Myga, but I don't even know what that stands for. And honestly, I didn't have a clean answer for her in the moment.

SPEAKER_00 0:58

That's such a common starting point. MyGa stands for multi-year guaranteed annuity. And the core idea is actually pretty simple. You hand over a lump sum to an insurance company, they credit you a declared interest rate for a set number of years, and at the end of that term you decide what to do next.

SPEAKER_01 1:16

What to Okay, so it's like a CD in that sense. You lock in a rate, you wait.

SPEAKER_00 1:21

That's the intuition most people start with, and it's not wrong. But there are some meaningful differences we should get into, because the CD comparison trips people up in both directions. Sometimes people think my gay eyes are scarier than they are. Sometimes they think they're simpler than they are.

SPEAKER_01 1:36

Right. And I think the rate is the thing that grabs people's attention first. Like my aunt saw a number on a website, and that was the whole conversation. I can get this rate, should I do it? But that's not really the right question, is it?

SPEAKER_00 1:51

It's part of the question. The rate absolutely matters. It determines how much your money grows over the contract period. But if that's the only thing you're looking at, you're missing a lot. And we'll get into what else matters. First, though, let's talk about why rates are where they are right now, because that context is actually useful.

SPEAKER_01 2:08

Yeah, because I remember a few years back people were barely talking about my gas. Uh and now it feels like everyone is.

SPEAKER_00 2:15

Because the rate environment changed dramatically. Insurance carriers invest the premiums they collect, primarily in bonds and other fixed income instruments. So when prevailing interest rates go up, carriers can offer higher credited rates on new contracts. Uh when rates were near zero, myGas were kind of a tough sell. Now they're they're much more competitive.

SPEAKER_01 2:33

And that's why ten-year mygas in particular have gotten so much attention lately.

SPEAKER_00 2:37

Exactly. Longer terms have generally come with more competitive rates because the carrier is getting a longer commitment from you. So they can plan their bond portfolio around that. So a 10-year MIGA has been one of the more popular options, but that doesn't mean it's right for everyone. And the term length is a big deal.

SPEAKER_01 2:55

Let's actually walk through how a 10-year Miga works mechanically, because I think people hear 10-year contract, and they assume it means their money is completely locked up for a decade.

SPEAKER_00 3:06

And that's not quite accurate. So here's the basic structure. You put in a single premium. There's usually a minimum, which varies a lot by uh product, anywhere from ten thousand dollars up to a hundred thousand or more depending on the carrier. The interest compounds tax deferred, which is a big deal we'll come back to. And yes, there is a surrender charge schedule if you need to get out early.

SPEAKER_01 3:27

Okay, surrender charges. That's the part that scares people. Walk me through what that actually looks like.

SPEAKER_00 3:33

So on a ten-year contract, a pretty typical schedule might start at nine percent in year one, and then step down each year. Eight percent, seven percent, and so on, until it hits zero by the end of the term. So if you're in year two and you need to pull everything out, the carrier takes a chunk.

SPEAKER_01 3:50

There takes a but not all of it, right? There's usually some amount you can access without a penalty.

SPEAKER_00 3:56

Yes. And this is important. Most my gays have what's called a penalty-free withdrawal provision. A lot of contracts let you pull out the interest earned each year, or sometimes a percentage of the account value, often 10%, without triggering a surrender charge. But here's where it gets nuanced. Some carriers include that automatically, and others offer it as an optional writer that slightly reduces your credited rate.

SPEAKER_01 4:22

So you might be comparing two contracts with the same headline rate, but one of them is actually giving you a little less flexibility than you think.

SPEAKER_00 4:30

Exactly. And this is why I always say the rate is the starting point, not the ending point. Two contracts can both say 10-year term and have very different surrender schedules, very different penalty-free provisions. You have to read the contract.

SPEAKER_01 4:44

There's also something in a lot of these contracts called a market value adjustment. I'll be honest. That one took me a while to understand.

SPEAKER_00 4:52

Yeah, an MVA is one of those things that's buried in the fine print and then surprises people. Basically, if you surrender the contract early, some carriers will apply an adjustment, up or down, based on how interest rates have moved since you bought the contract. So if rates have gone up since you purchased, the MVA might actually reduce what you get back. If rates have gone down, it could work in your favor.

SPEAKER_01 5:14

So it's not always negative, but it's a variable you need to know about.

SPEAKER_00 5:18

Right. And not every myga has an MVA. Some don't. But you absolutely want to ask before you sign. Does this contract have a market value adjustment? Should be on your checklist.

SPEAKER_01 5:28

Okay, let's go back to uh the uh tax piece because you mentioned tax-deferred compounding, and I think that's actually one of the most underappreciated parts of how mygas work.

SPEAKER_00 5:40

It really is. So here's the comparison that makes it concrete. If you put money in a bank CD, the interest you earn is taxable every single year, even if you don't touch it, even if you let it sit and compound. You're getting a tax bill on growth you haven't actually used yet.

SPEAKER_01 5:56

Which is annoying.

SPEAKER_00 5:57

It is. With a myga, you don't owe income tax on the growth until you actually take a withdrawal. So the interest is compounding on a larger base because you're not losing a slice to taxes each year. Over a 10-year period, that difference can be meaningful depending on your tax bracket.

SPEAKER_01 6:12

And for Tennessee residents specifically, there's actually a pretty favorable state tax picture here.

SPEAKER_00 6:18

Tennessee is actually in a good spot on this. There's no state income tax on wages or salaries, and the hall income tax, which used to apply to interest and dividends, was fully repealed as of January 1st, 2021. So Tennessee residents generally don't owe state income tax on my gay withdrawals.

SPEAKER_01 6:34

Federal tax still applies, though.

SPEAKER_00 6:37

Yes, absolutely. The growth portion of any distribution is subject to federal income tax. And if your Miyag is sitting inside a traditional IRA or another pre-tax account, the whole withdrawal is typically taxable at the federal level, not just the growth. That's a conversation for a tax professional, not a general rule you want to apply without looking at your specific situation.

SPEAKER_01 6:57

Right. And speaking of situations, let's talk about the CD comparison more directly, because I think a lot of Tennessee savers are genuinely weighing those two options right now.

SPEAKER_00 7:08

It's probably the most common comparison we see, and they're not as different as some people think, but the the differences that exist really matter. Both give you a fixed rate for a set term, both have penalties if you exit early. The tax treatment is the big one we just covered.

SPEAKER_01 7:21

What about the safety question? Because I know FDIC insurance comes up a lot when people are comparing.

SPEAKER_00 7:27

Yeah, this is where I want to be careful not to oversimplify. CDs at FDIC member banks are insured up to $250,000 per depositor per institution. My gays are not FDIC insured. They're backed by the financial strength of the insurance company that issued the contract.

SPEAKER_01 7:45

And in Tennessee, there's also a State Guarantee Association?

SPEAKER_00 7:49

Right. Tennessee has a State Guarantee Association that provides a backstop up to certain limits if a carrier becomes insolvent. But those limits vary, and it's not the same as FDIC coverage. It's a layer of protection, not a blanket guarantee. This is why carrier financial strength matters.

SPEAKER_01 8:06

So walk me through that. Um how do you actually evaluate whether a carrier is financially solid?

SPEAKER_00 8:13

The main tool most people use is AM Best Ratings. AM Best is an independent rating agency that evaluates insurance companies on their ability to meet their obligations. The scale goes from A, which is superior, down through A plus. A, A minus, B plus plus, which they call good. And then lower from there.

SPEAKER_01 8:37

And higher-rated carriers tend to offer lower rates?

SPEAKER_00 8:40

Often, yes, and that's a real trade-off that people have to think about. A carrier with a lower rating might be offering a more attractive rate. It depends on how much you have in the contract, what other assets you have, your overall situation. It's not something where there's a universal right answer.

SPEAKER_01 8:59

Aaron Powell That's actually a good point to push back on a little, Caleb, because I think sometimes people hear lower rated carrier and they immediately think it's a bad idea. But a B plus plus carrier isn't a fly-by-night operation.

SPEAKER_00 9:14

Aaron Ross Powell Fair. AM, best B is still good. It's not a red flag in isolation. The question is uh whether the rate premium you're getting uh compensates for whatever additional uncertainty exists. And that's exactly the kind of conversation to have with a licensed agent who can look at the full picture, look at the full Let me throw a scenario at you, um, because I think this makes it more concrete.

SPEAKER_01 9:38

Picture a couple, both 65, they've got $100,000 sitting in a savings account, earning basically nothing, and they're trying to decide between a five-year myga and a ten-year MIGA, how do you even start that conversation?

SPEAKER_00 9:53

The first question I'd ask is, well, what's this money for? Is it money they might need in five years for something specific? Travel, a home repair, helping a kid with a down payment, or is it truly money they don't expect to touch for a decade?

SPEAKER_01 10:04

Because the rate difference between five and ten years might be tempting, but if they need liquidity in year six, then the ten-year surrender schedule is still active.

SPEAKER_00 10:13

Exactly. And that's where people get into trouble. They see the higher rate on the longer term and don't fully internalize what year seven, eight percent surrender charge actually means in dollars.

SPEAKER_01 10:24

On a hundred thousand dollars, eight percent is eight thousand dollars. That's real money.

SPEAKER_00 10:28

It is. Um, and that's before any MVA adjustment if the contract has one. So the term length decision is really a liquidity decision first and a rate decision second.

SPEAKER_01 10:37

I also want to make sure we talk about what happens at the end of the term because I think people sometimes forget that the contract doesn't just end. There's a decision point.

SPEAKER_00 10:48

Right. And this is something people overlook when they're buying. Most carriers give you a window at maturity, often 30 days, where you can withdraw the full value without any surrender charge, roll it into a new contract, or explore other options. If you do nothing during that window, the contract typically auto-renews at whatever rate the carrier declares at that time.

SPEAKER_01 11:08

Which might be great or might be terrible, depending on where rates are.

SPEAKER_00 11:12

Exactly. So um you want to put that maturity date in your calendar years in advance. Don't let it sneak up on you.

SPEAKER_01 11:19

I actually know someone this happened to. A neighbor of mine, 62, when he bought a five-year fixed annuity. He just kind of forgot about it. The window came and went, and it renewed at a rate that was noticeably lower than what he could have gotten by shopping around at that point.

SPEAKER_00 11:36

That's a really common story. The contract does exactly what it's supposed to do. It renews. But the person didn't engage with the decision. And that's not the carrier doing anything wrong. It's just what happens when you're not paying attention.

SPEAKER_01 11:48

Okay, let's talk about some of the other things that can affect whether a specific MIGA is actually available to you. Because I think people sometimes go through this whole research process and then find out the product doesn't apply to their situation.

SPEAKER_00 12:00

Yeah, there are a few practical filters. State availability is one. Not every MOIGA is approved for sale in every state. Tennessee residents need to confirm that any product they're looking at is actually approved here. That's not a given.

SPEAKER_01 12:13

And age limits?

SPEAKER_00 12:15

Carriers set maximum issue ages, often somewhere around 85 or 90. And those can vary depending on whether the money is in a qualified account, like an IRA or a 401k, or a non-qualified account. So someone who's 82 might find that certain products aren't available to them or that the qualified versus non-qualified distinction changes what they can access.

SPEAKER_01 12:36

And the minimum premium thing. That's tripped people up too.

SPEAKER_00 12:41

Definitely. Some products start at $10,000, which is pretty accessible. Others require a hundred thousand or more. Um so if you're comparing rates across carriers and one of them has a minimum that's higher than what you have available, that that rate is kind of irrelevant to you.

SPEAKER_01 12:58

What about riders? I feel like that's a whole conversation that sometimes gets glossed over.

SPEAKER_00 13:03

Riders are add-ons to the base contract. The most common ones on my gaze are things like enhanced death benefits. And they do come at a cost, usually a small reduction in your accredited rate. So you're trading a little bit of growth for an additional feature.

SPEAKER_01 13:16

And whether that's worth it totally depends on the person.

SPEAKER_00 13:19

Completely. There's no general answer. Um someone who has estate planning concerns and wants to make sure a specific amount passes to a beneficiary might find an enhanced death benefit writer really valuable. Someone else might look at the rate reduction and say, I'd rather have the higher rate and handle that separately. It's not a product decision. It's a personal situation decision.

SPEAKER_01 13:41

Okay, let's try to bring this together practically. If someone in Tennessee is sitting down right now and saying, I want to compare my GA rates, I what does that process actually look like? Because I don't think it's as simple as Googling a number.

SPEAKER_00 13:55

It's really not. And the first thing to understand is that rates change frequently, sometimes week to week. So a rate you saw last month might not be available today, and a rate that wasn't available last month might be on the table now.

SPEAKER_01 14:08

So you need current quotes, not cashed information.

SPEAKER_00 14:11

Right. And you want quotes from multiple carriers, not just one. The spread between what different carriers are offering for the same term can be surprisingly wide. Shopping around isn't just a good idea, it's kind of the whole game.

SPEAKER_01 14:26

But then once you have those quotes, you're back to the conversation we've been having. The rate is just the starting point.

SPEAKER_00 14:32

Aaron Powell Exactly. You look at the surrender schedule, you look at the penalty-free withdrawal provisions, um, you check whether there's an MVA, you look at the the uh carrier's AM best rating, you confirm it's approved in Tennessee, you check the minimum premium and the maximum issue age, and it's a checklist, not a single number.

SPEAKER_01 14:50

Not a And honestly, that's a lot for someone to do on their own, especially if they're not used to reading insurance contracts.

SPEAKER_00 14:57

Aaron Powell Which is why working with a licensed annuity agent is genuinely useful, not as a sales pitch, but as a practical matter. A good agent can pull live quotes from multiple carriers, walk you through the contract details side by side, and help you figure out whether a mirage actually fits your situation or whether something else makes more sense.

SPEAKER_01 15:15

Aaron Powell And they should be asking you questions, not just showing you the highest rate.

SPEAKER_00 15:20

That's the tell. If an agent is just leading with, here's the best rate, that's a yellow flag. The right questions are about your timeline, your liquidity needs, whether this money is qualified or non-qualified, what your income situation looks like in retirement. The product comes after that conversation, not before.

SPEAKER_01 15:38

Going back to my aunt for a second, she's 68. She's got that 120,000 from the rental property sale. What are the questions she should be walking into that conversation with?

SPEAKER_00 15:50

I'd want her to know, does she have other liquid savings she can access if something comes up? Because if this hundred and twenty thousand is her only cushion, a ten year surrender schedule is a real constraint. What's her income picture? Does she have social security, a pension? Anything else coming in? And what's the tax situation on this money? Uh is it already been taxed or is it in a pre-tax account?

SPEAKER_01 16:11

Because if it's non-qualified money already been taxed, the tax deferral benefit of the MIGA is actually pretty attractive for her.

SPEAKER_00 16:19

Aaron Powell Especially in Tennessee, where she's not paying state income tax on the growth either. The federal piece still applies when she takes distributions, but she's not getting hit twice.

SPEAKER_01 16:28

That's actually a meaningful advantage that I don't think she'd fully appreciated when we talked.

SPEAKER_00 16:33

It's one of those things that doesn't sound exciting until you do the math. And the math, over ten years of compounding, without an annual tax drag, it adds up.

SPEAKER_01 16:41

One last thing I want to flag because I think it's easy to forget in all of this. Megas are insurance contracts, not investments. That distinction matters.

SPEAKER_00 16:52

It really does. And I think it matters beyond just regulatory language. Uh the way you evaluate an insurance contract is different from the way you evaluate a stock or a mutual fund. You're not chasing returns. You're making a decision about how a portion of your assets behaves over a specific period. That's a different kind of question.

SPEAKER_01 17:09

And it fits into a broader financial picture. It's not the whole picture.

SPEAKER_00 17:13

Right. Most people who use my gas well are using them for a specific portion of their assets. Money they don't need immediate access to, where they want predictable growth and tax deferral. It's not a replacement for everything else. It's a tool for a specific job.

SPEAKER_01 17:29

And knowing what that job is before you buy is kind of the whole point of everything we've talked about today.

SPEAKER_00 17:35

That's it. Know the term, know the surrender schedule, know the carrier, know your own timeline. The rate is the headline, but the contract is the story.

SPEAKER_01 17:50

That's it for today's Tennessee Annuity Show.

SPEAKER_00 17:53

If you have questions about your specific situation, talk to a licensed advisor.

SPEAKER_01 17:56

Visit Tennessee AnnuityRates.com for show notes or to get matched to an advisor.

SPEAKER_00 18:02

We'll see you next time.