Episode 50: 10% Annuity Withdrawals or Interest Accrual?

When it comes to annuity withdrawals, there’s no one-size-fits-all answer. Each person’s financial goals and needs are unique, which makes choosing the right withdrawal strategy essential. Sometimes, a fresh perspective can highlight a smarter approach to withdrawing funds.

In this guide, we’ll focus on two main strategies for annuity withdrawals in multi-year guaranteed annuities (MYGAs): a 10% withdrawal and an interest-only withdrawal. Understanding which option suits your situation best can make a big difference in maximizing your annuity’s potential.

Three Key Options for Annuity Withdrawals

There are three main ways to withdraw money from a multi-year guaranteed annuity (MYGA). Each option offers a different approach, and depending on your provider, you may have one or all of these choices:

1. 1. Monthly or Annual Interest Withdrawal
      • • You can receive a monthly or annual payout of the interest earned.
      • • This option is great if you’re looking for regular income.

1. 1. 10% of Account Value Withdrawal
      • • Some annuities allow you to take up to 10% of your account value each year.
      • • This withdrawal type is useful if you need a larger sum occasionally.

1. 1. Interest Accumulation Withdrawal
      • • Here, you let your interest accumulate over several years, then withdraw it as a lump sum.
      • • This option can give you a significant amount of interest at once but might require a lower rate than other options.

Withdrawal Option	Purpose	Suitable For
Monthly/Annual Interest	Regular Income	Steady monthly or annual cash flow
10% of Account Value	Flexible Access	Occasional larger needs
Interest Accumulation	Long-term Growth	Larger lump sum after several years

Each of these options serves a different purpose, so consider your goals carefully.

Choosing Between Monthly Interest, 10% Withdrawals, and Interest Accumulation

Now, which annuity withdrawal option is best? The answer depends on what you need the money for. Here are some basic guidelines:

• • If you want a steady income stream, consider monthly or annual interest withdrawals.

• • If you might need larger amounts at once, such as for emergencies or planned expenses, look into 10% annuity withdrawals or interest accumulation withdrawals.

However, as one of our listeners pointed out, it might even be worth choosing a slightly lower interest rate if it gives you access to a better withdrawal option, like the interest accumulation withdrawal. Let’s look at a quick comparison to illustrate this.

Scenario Comparison: High Interest with 10% Withdrawals vs. Lower Interest with Full Accrual

Consider two different MYGA scenarios. Both are ten-year annuities, but one has a higher interest rate with a 10% withdrawal option, while the other has a lower interest rate but allows full interest accrual.

• • Scenario 1:
    • • 10-year MYGA, 5.5% interest rate
    • • After five years with no annuity withdrawals, the account value grows from $100,000 to $130,000.
    • • You can withdraw up to 10%, or $13,000.

• • Scenario 2:
    • • 10-year MYGA, 5.0% interest rate
    • • After five years with no annuity withdrawals, the account grows to $127,500.
    • • With the interest accumulation withdrawal provision, you can take out the entire $27,500 in accumulated interest.

Scenario	Interest Rate	After 5 Years	Maximum Withdrawal
Scenario 1	5.5%	$130,000	$13,000
Scenario 2	5.0%	$127,500	$27,500

As you can see, Scenario 2 offers a lower interest rate but results in a significantly higher withdrawal amount due to the full interest accrual option.

Determining Your Ideal Withdrawal Option Based on Financial Goals

The right annuity withdrawal strategy depends on your specific goals and needs. Here are some pointers to help you decide:

• • If you need regular income, prioritize annuities that offer monthly or annual interest withdrawals.

• • If you want flexibility for occasional larger needs, consider the 10% withdrawal option.

• • If you’re aiming for a larger amount in the future, focus on annuities that offer the interest accumulation withdrawal option, even if the interest rate is a bit lower.

In general:

• • Choose the highest interest rate available if you don’t expect to need large lump sum withdrawals.

• • If you may need to withdraw more during the annuity term, consider a policy with interest accrual withdrawal options.

Final Thoughts and How to Reach Out

Choosing the best annuity withdrawal option can feel complex, but it’s all about aligning with your personal goals. Understanding how each option works and what it offers is key to making the most of your annuity.

For personalized help in choosing the best strategy, reach out for a free consultation. You can schedule a call on my calendar, and we’ll work together to find which annuity strategy best meets your needs.

Podcast Episode 50: 10% Annuity Withdrawals or Interest Accrual?

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