The 6% Question
A five-year contract is earning 6%. How much more would you need to expect from equities to take the risk instead?
6.00%
Guaranteed each year for five years, available today from A-rated carriers
?
The extra return you’d require for accepting market risk
?
What equities must earn, every year, to have been worth it
That middle number is the whole conversation. This piece is about how to set it.
Declan Donahue
VP Annuities, DMI
September 2026
9 min read
A client has money they will not need for five years. A five-year multi-year guaranteed annuity is earning 6%. The alternative is to put that money in the market.
The usual way to argue this is to predict what stocks will do. That argument never lands, because nobody knows, and the advisor across the table knows nobody knows.
So ask a better question — one that doesn’t require a forecast from either of you:
If a client can earn 6% a year for five years with a contractual guarantee, how much additional return would you need to expect from equities to justify taking market risk with that same money?
Most advisors have never said that number out loud. It is worth saying out loud, because everything else follows from it.
Risk premium
Risk premium is the extra return you expect to be paid for accepting uncertainty. Nothing more complicated than that.
If a guaranteed option pays 6% and you would accept an equity portfolio that you expect to return 6%, you are taking risk for free. The five years of volatility, the sequence of returns, the chance the client calls you in month fourteen — all of it, for nothing extra. Nobody actually does this on purpose.
So the number has to be higher. The question is how much higher, and that is a judgement, not a formula. Two points? Four? It depends on the client, the money, and what happens if the money is not there in year five.
Whatever you decide, it sets a hurdle:
| If you’d require… | …then equities have to deliver |
|---|---|
| 2 points over the guarantee | 8% a year, for five years |
| 3 points over the guarantee | 9% a year, for five years |
| 4 points over the guarantee | 10% a year, for five years |
Illustrative only. The premium you require is a judgement about the client and the money, not a market forecast.
Now the only question left is the one that matters: do you expect this particular dollar, over this particular five-year window, to clear that hurdle?
If the answer is yes, put it in the market. That is a defensible decision and this article is not arguing against it. Equities may well outperform 6% over the next five years — frequently they have.
But if the answer is no, or genuinely uncertain, then you have just identified money that is being asked to take risk it is not being paid to take. That money has somewhere else to go.
Where a five-year contract actually fits
Not the portfolio. A portion of it.
A five-year MYGA does one job well: it converts a known amount of money into a known amount of money on a known date. $100,000 at 6% becomes $133,823 in five years, and the only variable is whether the insurer pays — not the market, not the sequence, not the client’s nerve in a drawdown. Growth is not taxed until it comes out, which matters in a non-qualified account.
That makes it a fit when three things are true at once:
- The money has a date. A funding need in five years, a planned purchase, the near end of a retirement income ladder — something with a deadline attached.
- The client values the known rate more than the unknown upside. Some clients do. Some don’t. This is a preference, not a mistake, and it is your job to find out which one you are sitting with.
- The client can genuinely commit the money for the full term. If that is in doubt, stop here. This is the condition advisors most often wave past, and it is the one that causes the problem.
When those three hold, the hurdle question usually answers itself. When they don’t, it isn’t the right money for this contract — and the answer is not to talk the client into it.
What the client gives up
Four things, and they should be said plainly in the meeting rather than discovered later.
- The guarantee is the insurer’s, not the government’sA MYGA is backed by the claims-paying ability of the issuing insurance company. It is not FDIC insured. Carrier financial strength is a real part of the recommendation, not a footnote — check the AM Best rating and know who you are placing the case with.
- Leaving early costs moneySurrender charges apply through the guarantee period, and many contracts add a market value adjustment that can move against the client if rates rise. The rate is guaranteed if the client stays; the principal is not fully available if they don’t.
- Liquidity is limitedMost contracts permit a penalty-free withdrawal of around 10% a year. The rest is committed. That is the trade being made in exchange for the guarantee.
- The upside is capped at the rateIf equities clear the hurdle over these five years, the client leaves money on the table. That is the honest cost of certainty, and a client who wants growth from this dollar should own equities with it.
Have a client case right now?
You don’t need to wait for the webinar. If this fits money you’re working with today, talk it through with Declan or check current rates.
A client-ready way to ask it
The question works in front of a client almost unchanged:
“We can lock this piece at 6% a year for five years, guaranteed by the insurance company. Or we can invest it. If we invest it, I think we should expect meaningfully more than 6% — otherwise we’re accepting the ups and downs for no extra reward. So: how much more would make that worth it to you?”
Then stop talking. The number the client gives you is the most useful thing you will learn in that meeting. It tells you how they actually feel about risk with this money, which is often different from how they answered the risk questionnaire three years ago.
The bottom line
This is not an argument that a MYGA will beat stocks. It won’t always, and over five years it frequently won’t.
It is an argument that the comparison should be stated as a hurdle instead of a hunch. When you name the premium you require, one of two things happens: you confirm the money belongs in the market and you invest it with more conviction, or you find a piece of the portfolio that has been taking risk without being paid for it.
Either outcome is a better conversation than the one that starts with a forecast.
What we’ll cover on October 21
Thirty to forty-five minutes, live with Declan. The session goes deeper than this piece: where the five-year rate came from and whether it lasts, how contractual money compares to the bond sleeve it usually replaces, what tax deferral is and isn’t worth, and the objections you should expect from an investment committee. Bring a live case — and every registrant gets the recording plus a one-page client conversation guide to take into the next meeting.
Don’t wait for a webinar if you have a case
DMI’s MYGA Store carries daily-updated rates across 30+ carriers. Bring a case and we’ll price it with you now. Or join Declan live on October 21 — 30–45 minutes, including Q&A.
Declan Donahue
VP Annuities
Declan works with RIAs, broker-dealer reps and hybrid advisors on where contractual assets belong inside a managed portfolio: product selection, carrier diligence, and the client conversation that gets a case to issue. He is a regular presenter for DMI University.