A Market Value Adjustment Feature Shares Some Annuity Contract Risk

A Market Value Adjustment, or MVA, feature in your annuity contract enables your annuity company to pay you a better rate because you share some risk.

The world of annuities has a minefield of complexities. Even qualified retirement planning advisors or portfolio managers are sometimes confused by features in annuity contracts.

Let's talk through the MVA feature and try to understand it:

You enter into a contract with your annuity company for a specified term. Your annuity company then invests the premium you paid for the annuity in order to earn enough income on average to pay you the rate they guaranteed in the contract for the duration of the term.

Your intention too is to honor the contract for the duration of the term. To surrender the contact or to withdraw in excess of the contract schedule is almost never to your benefit.

And that is exactly the assumption the annuity company makes. If they were to build in the risk of your premature withdrawal or surrender, the contract would specify a significantly lower guaranteed rate to pay to you.

By including the MVA feature in the annuity contract, you are now sharing this risk and the annuity company can pay you a better guaranteed rate.

What happens when, in spite of the possible breach of contract, you want to withdraw in excess of the free withdrawal amount or you want a full surrender during the contract term? That's where the value adjustment kicks in. And it is not always negative.

To get the money to refund your premium plus your earnings, your annuity company needs to liquidate at market value a portion or all of the investment it made at the close of your contract. MVA is a mathematical calculation to adjust the amount due to you to it's market value.

If the interest rate remained the same or declined since you entered into the annuity contract, the MVA could reduce the amount paid out to you. Conversely, if the annuity company realized a gain on their investment, you might receive a higher amount.

This Website is about retirement planning with an emphasis on retirement provision as a priority of your savings effort. It is just as important to choose the annuity that's right for you and to stick to your contract.

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