4 Costly MYGA Annuity Mistakes (And How to Avoid Them)

Written by Hersh Stern Updated September 18, 2025

You’re not alone if you’re thinking about buying a Multi-Year Guarantee Annuity (MYGA) but are worried about making a big financial mistake. MYGAs can be a valuable part of your financial portfolio — if you understand exactly what you’re buying. We’re going to outline a few common mistakes that people make when buying a MYGA and how to avoid them.

Mistake #1: Not Knowing Your Withdrawal Allowances

This is a big one. Sometimes people buy a fixed-deferred annuity assuming that they will be allowed to make withdrawals from it at their discretion. However, not all annuity accounts allow for discretionary withdrawals, and if they do, they are typically limited.

We have a whole article dedicated to understanding annuity withdrawals, but the short of it is to make sure you know what withdrawals are allowed (or not allowed) for your annuity before you purchase it. This is especially important if you are purchasing an annuity with qualified funds (like an IRA) and need to take your required minimum distributions (RMDs).

Many MYGAs, but not all, allow for some discretionary withdrawals like:

• 10% of your contract value
• Interest only withdrawals
• Requirement Minimum Distribution (RMD) withdrawals (also called “RMD friendly”)
• Terminal Illness and Nursing Home Confinement allowances

However, you should make sure you know which withdrawals your annuity offers to make sure it fits in your overall financial plan. Also, make sure you know if there are any fees or required withdrawal riders you are required to purchase upfront.

Mistake #2: Ignoring Company Ratings For Best Interest Rates

You want to get the best interest rate for your annuity, that’s completely understandable. But don’t go for the best interest rate and ignore the insurance company’s rating. After all, when you buy a MYGA you are purchasing a contractual promise from the insurer to provide you with guaranteed interest. This contract is only good if the insurance company stays solvent and can pay its obligations.

That’s where insurance company ratings come in. Ratings agencies, such as A.M. Best, Moody’s, and Standard & Poor’s evaluate and rate insurance company’s financial stability. Insurance company ratings don’t tell you how good an annuity is, but instead tell you how financially secure the insurance company is.

While A.M. Best specializes in rating insurers, we also look at Standard & Poor’s and Moody’s ratings for a more complete picture of financial strength.

Since annuities are not FDIC insured, it’s important to get an annuity with a solid insurer. While state guaranty associations may cover your annuity up to a certain amount in the rare event of an insurance company defaulting, it is safer to just go with a strong company in the first place.

Insurers experiencing financial hardship may go through a number of other processes before State Guaranty Associations step in, such as being rehabilitated by an independent entity or limiting discretionary withdrawals. Going with a highly-rated insurance company in the first place minimizes your risk of regulatory headaches and the potential for financial loss.

Mistake #3: Trying to Time the Market

This is a topic that has been thoroughly analyzed by financial professionals who try to help everyday investors (people like you and me) navigate complicated financial products and markets. By and large, the consensus is that for the average investor, time in the market beats timing the market. In plain language, waiting around for the perfect time to buy typically ends in lower returns than just buying when the funds are available.

The reason for this is that correctly timing the market is incredibly difficult, requiring expert knowledge, and even then the experts sometimes get it wrong. If you don’t have this expertise, it often makes more sense to purchase your financial products systematically or when the money becomes available. This way your hard-earned money isn’t idling in a low yield account while you wait for the perfect time to buy your annuity.

If you are having a hard time committing to your MYGA purchase, know that there are options that can help you ease into an annuity purchase while minimizing both interest rate risk and the risk of your insurer defaulting. Creating an annuity ladder is a great strategy to do just that. Essentially an annuity ladder is a strategy where you purchase annuities with different durations, sometimes at different points in time, to minimize the risk you get stuck with low yield annuities in high yield environments.

Mistake #4: Thinking All Annuities Are Expensive and Bad

There’s a lot of marketing going on about why certain advisors “hate annuities” and how they are expensive and bad. We would urge you to take any blanket advice with a grain of salt. Like any other financial product, there are good annuities, not-so-good annuities, and some that might be bad fit for your personal finances. The trick is to find the annuity that is good for your personal situation, if there is any!

So how do you find this “good” annuity? First, we’d suggest you work with a reputable annuity expert to identify the product that best meets your financial goals. In order for an annuity expert to do this, you’ll need to clearly state to them what you want from your annuity.

Since you’re already looking at MYGA annuities, you first want to make sure that MYGA is the best type of annuity for your needs. MYGAs grow at a guaranteed interest rate for a set period of time; that’s their primary function. MYGAs also tend to have lower commissions than other annuities and have little or no fees (though there are some exceptions).

Another key element of making sure your annuity is good is understanding it. Read the product brochure and make sure it meets with your expectations. Go even further and request a sample contract. Read the sample contract and make sure you understand it. If there’s something you don’t understand, ask! And finally, get trusted family members or friends to read the brochures and sample contracts with you before you commit to anything.

How to Avoid Making These 4 Annuity Mistakes

By taking time to make sure you understand your annuity and working with a trusted annuity expert, you can make sure you aren’t buying an annuity that’s bloated with high fees, unnecessary features, and marketing gimmicks. Use this checklist of things to understand before you commit to anything with an annuity:

• Understand how and when you have access to your money
• Read the product brochure and sample contract, asking questions about anything you don’t understand
• Review all costs, including commissions, fees, and loads, before you buy Avoid market-timing; use a cost-averaging strategy if it helps you feel confident
• Talk with trusted family and friends, especially if they will be impacted by your purchase
• Work only with agents who are transparent and never pressure you

These steps will help you choose the right MYGA annuity for your financial goals.

With a little help, you can be sure you are buying an annuity that meets your goals and provides you with the guarantees you need and expect. We’re happy to help you find, understand, and buy the best annuity for your needs. Simply call us at (866) 866-1999. And if an annuity won’t work the way you want it to, we’ll tell you. We promise we will never pressure you to buy an annuity and give you honest answers to your questions.

References:

• Schwab Center for Financial Research. “Does Market Timing Work?” Schwab Center for Financial Research, July 18, 2025, https://www.schwab.com/learn/story/does-market-timing-work.
• Knueven, Liz. “A.M. Best ratings evaluate insurance companies’ financial strength — here’s what you need to know about these scores”, CNBC, Published March 29, 2024. Retrieved September 17, 2025 from https://www.cnbc.com/select/what-are-am-best-ratings/
• “Annuities: Unsuitable Investments for Seniors” The office of Minnesota Attorney General Keith Ellison, retrieved September 17, 2025 from https://www.ag.state.mn.us/consumer/Publications/AnnuitiesUnsuitableInvforSeniors.asp