MetLife fixed annuities are insurance contracts that credit a guaranteed minimum interest rate on your premium, let that interest compound tax-deferred, and protect your principal from market losses, with the insurer’s own balance sheet standing behind every guarantee. One wrinkle to settle up front: MetLife spun off much of its retail annuity business into Brighthouse Financial in 2017, so a contract bought under the MetLife name years ago may now be serviced by Brighthouse, and MetLife’s current individual lineup may not match what was sold historically. Metropolitan Life Insurance Company, MetLife’s primary insurance subsidiary, carries an A+ (Superior) Financial Strength Rating from AM Best.
What Kind of Contract You Have
Fixed annuities come in two shapes. A Multi-Year Guarantee Annuity, or MYGA, locks a single interest rate in place for the full contract term, often three to ten years. A traditional fixed annuity guarantees an initial rate for a shorter window and then resets the rate each year, with the insurer declaring a renewal rate that can be higher or lower depending on where interest rates sit at the time.
Most of these contracts are bought with a single lump-sum premium rather than ongoing deposits. The money you use to fund the contract decides how later withdrawals are taxed. A qualified annuity is funded with pre-tax retirement dollars, usually through a rollover from a workplace plan or deductible IRA. A non-qualified annuity is bought with money you’ve already paid taxes on, which changes the withdrawal math considerably.
How Interest Is Credited and Guaranteed
Two numbers matter. The declared rate is what the insurer actually credits to your account. On a MYGA it’s locked for the whole term. On a traditional fixed annuity it’s reset each year after the initial guarantee runs out, and renewal rates track the insurer’s investment portfolio and prevailing market rates. If rates have fallen since you bought the contract, the renewal rate will usually fall too.
The minimum guaranteed interest rate (MGIR) is the contractual floor below which the declared rate cannot drop. Under the NAIC Standard Nonforfeiture Law for Individual Deferred Annuities, the MGIR is capped at the lesser of 3% or a formula tied to the five-year Constant Maturity Treasury rate, with an absolute floor of 0.15%.1National Association of Insurance Commissioners. NAIC Model Law 805 – Standard Nonforfeiture Law for Individual Deferred Annuities Most contracts issued in recent years carry an MGIR somewhere between 1% and 3%.
Principal protection is what you’re really paying for. The credited rate is always zero or positive, so your account value does not go down. That guarantee is backed by the insurer’s general account, not by a separate pool of investments you can lose money in.
How Withdrawals Are Taxed
Interest earned inside the contract is not taxed until you take money out. Over a long accumulation phase, that deferral lets your interest earn its own interest instead of being trimmed by taxes every year.
When you do withdraw, how the IRS treats the money depends on how you funded the contract.
Non-Qualified Contracts
If you bought the annuity with after-tax dollars, withdrawals before annuitization follow an earnings-first rule. Every dollar you pull out is treated as coming from your gains and taxed as ordinary income until all the earnings have been distributed. Only then do subsequent withdrawals count as a tax-free return of your original premium.2Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts This is sometimes called the LIFO rule.
Qualified Contracts
If the annuity sits inside a qualified retirement account funded with pre-tax money, the entire withdrawal is taxed as ordinary income. There’s no earnings-first calculation because none of the money has been taxed before.
The 10% Early Withdrawal Penalty
Withdrawals before age 59½ are generally hit with an additional 10% federal tax on the taxable portion. The penalty applies to both qualified and non-qualified annuities. Exceptions include distributions after the owner’s death, total and permanent disability, and a series of substantially equal periodic payments taken over your life expectancy.3Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The IRS penalty is separate from any surrender charge the insurance company imposes. A single early withdrawal can trigger both.
Required Minimum Distributions
If your fixed annuity funds a qualified retirement account like an IRA, you must start taking required minimum distributions by April 1 of the year after you turn 73.4Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) A shortfall triggers a steep excise tax. Non-qualified annuities are not subject to RMD rules.
Getting Money Out Before the Surrender Period Ends
Free Withdrawal Allowance
Most MetLife fixed annuities let you take out a portion of your account value each year, commonly up to 10%, without a surrender charge.5MetLife. Annuities – Answering Your Questions About Annuities The allowance resets each contract year, and anything you don’t use does not carry forward.
Surrender Charges
Withdrawals above the free allowance, or a full surrender, trigger a surrender charge calculated as a percentage of the excess. A typical schedule starts around 7% in year one and drops by roughly a percentage point each year until it reaches zero.5MetLife. Annuities – Answering Your Questions About Annuities After the surrender period, you can withdraw or surrender the full balance without a charge from the insurer.
Market Value Adjustment
Some contracts carry a market value adjustment (MVA) that changes your surrender value based on how interest rates have moved since you bought in. If rates have risen, the MVA cuts your payout. If rates have fallen, it adds to it. The MVA applies only during the surrender charge period and only to amounts beyond the free withdrawal allowance. It does not apply after the surrender period ends, upon annuitization, or when a death benefit is paid. Not every MetLife contract includes an MVA, so check the summary page of your own policy.
Waivers for Nursing Care or Terminal Illness
Many fixed annuity contracts waive the surrender charge if you’re confined to a nursing home or similar care facility, or if you’re diagnosed with a terminal illness. Qualifying events and waiting periods vary by contract and by state, and these waivers are optional benefits rather than universal features. Your contract spells out whether a waiver applies and what triggers it.
Turning the Balance Into Income
If you decide to convert your accumulated value into guaranteed income, the insurer offers several payout structures:
- Life only. Payments continue for as long as you live and stop at your death. This produces the highest monthly payment because the insurer takes no risk of paying beyond your lifetime.
- Life with period certain. Payments are guaranteed for a minimum stretch, often 10 or 20 years. If you die inside that window, your beneficiary collects the remaining payments.
- Joint and survivor. Payments continue for the life of a second person, usually a spouse, after the first annuitant dies.
Annuitization is a one-way door. Once you elect it, the lump-sum value is gone and you receive scheduled payments in its place. Nothing in the contract requires you to annuitize; many owners simply take withdrawals during the accumulation phase or surrender the contract for its cash value after the surrender period ends.
What Your Beneficiary Gets
If you die during the accumulation phase before annuitizing, your named beneficiary generally receives the full accumulated account value, including credited interest, usually without reduction for surrender charges. The beneficiary can typically take the proceeds as a lump sum or stretch them over time, depending on the contract terms and the beneficiary’s relationship to you.
The earnings portion of a non-qualified death benefit is taxable as ordinary income; a qualified death benefit is fully taxable. The 10% early withdrawal penalty does not apply to death benefit distributions regardless of the owner’s age. If you had already annuitized under a life-only option, nothing passes to a beneficiary. Under a period-certain or joint-and-survivor option, payments continue to your beneficiary or surviving annuitant as the contract specifies.
How Safe the Guarantee Is
Every promise in a fixed annuity depends on the insurer’s ability to pay. Metropolitan Life Insurance Company holds an A+ (Superior) Financial Strength Rating from AM Best with a stable outlook, reflecting AM Best’s view of its balance sheet, operating performance, and business profile.6AM Best. AM Best Affirms Credit Ratings of MetLife, Inc. and Its Life/Health Subsidiaries A+ is the second-highest tier on AM Best’s scale, and no rating guarantees future solvency.
Beyond the insurer itself, every state runs a life and health insurance guaranty association that pays claims if a member insurer becomes insolvent. For annuities, the most common coverage limit is $250,000 per owner per insurer, with some states going as high as $500,000.7NOLHGA. How You’re Protected The protection is funded by assessments on surviving insurers rather than by the federal government. Holders with annuity values well above their state’s limit sometimes split balances between two carriers.
Swapping Into a Different Annuity
If you want to move your MetLife fixed annuity into another annuity contract, Section 1035 of the Internal Revenue Code allows a tax-free exchange. No gain or loss is recognized when you swap one annuity for another, provided the exchange meets IRS requirements.8Office of the Law Revision Counsel. 26 USC 1035 – Certain Exchanges of Insurance Policies The new contract must cover the same owner, and the money has to move directly between insurers rather than passing through your hands. A 1035 exchange avoids a taxable event, but it does not avoid any surrender charge MetLife would still impose if you’re inside the surrender period on the old contract.