Case Study: Saving $47,000 by Moving from a Variable Annuity to a MYGA
January 15, 2026 • 5 min read • 1035 Exchange, Variable Annuities
Client details have been anonymized. Numbers are based on actual contract values and quotes but have been rounded for clarity.
The Situation
A 63-year-old retired couple came to me with a variable annuity they had purchased eight years ago. The contract value was approximately $285,000 on an original investment of $240,000 — meaning $45,000 in gains over eight years.
Here is what the contract looked like:
- M&E charge: 1.35%
- Administrative fee: 0.15%
- Average subaccount expense: 0.85%
- Income rider (GLWB): 0.75% — but they had never activated it and did not plan to
- Total annual cost: 2.80% — approximately $7,980 per year on $285,000
The surrender period had expired two years earlier. There were no surrender charges. The GLWB rider had a benefit base of $310,000, but since they had no plans to activate it (they had a pension and Social Security covering their income needs), the rider was costing them $2,138 per year for a feature they would never use.
The Problem
The couple was paying nearly $8,000 per year in fees for a product they did not need. They did not want market risk. They did not need the income rider. They wanted safety, simplicity, and a guaranteed return. Their VA was doing none of those things — it was just expensive.
Over the next five years at 2.80% annual fees, they would pay approximately $39,900 in total fees (compounding on a declining fee base). And they were still exposed to market downside in every subaccount.
What We Did
We initiated a 1035 exchange from the variable annuity to a 5-year MYGA. The process:
- Confirmed the surrender period had expired (no charges)
- Confirmed the GLWB rider had no value to them (never activated, would not be activated)
- Obtained MYGA quotes from four A-rated carriers
- Selected a 5-year MYGA at 4.65% (illustrative) from an A-rated carrier
- Submitted 1035 exchange paperwork through the new carrier
- Transfer completed in 3 weeks — full $285,000 moved tax-free
The Numbers: Before vs. After
Metric: Starting value | Variable Annuity (Stay): $285,000 | MYGA (Exchange): $285,000
Metric: Guaranteed rate | Variable Annuity (Stay): None (market-dependent) | MYGA (Exchange): 4.65% for 5 years
Metric: Annual fees | Variable Annuity (Stay): ~$7,980 (2.80%) | MYGA (Exchange): $0
Metric: Total fees over 5 years | Variable Annuity (Stay): ~$39,900 | MYGA (Exchange): $0
Metric: Market risk | Variable Annuity (Stay): Yes — could lose principal | MYGA (Exchange): None — rate guaranteed
Metric: Value at year 5 (MYGA guaranteed) | Variable Annuity (Stay): Unknown | MYGA (Exchange): ~$357,000
Metric: Value at year 5 (VA if 6% avg return) | Variable Annuity (Stay): ~$310,000 (after fees) | MYGA (Exchange): —
Metric: MYGA advantage (vs. VA at 6% return) | Variable Annuity (Stay): — | MYGA (Exchange): ~$47,000
All values illustrative. MYGA guarantee backed by the issuing insurer’s claims-paying ability. Not FDIC-insured. VA return assumed at 6% gross, reduced by 2.80% fees. Actual VA returns are not guaranteed and may be higher or lower.
Even if the VA’s subaccounts averaged 6% gross annual returns — which is optimistic for a conservative allocation in a mixed market — the MYGA comes out approximately $47,000 ahead over five years. The fee drag is that powerful.
What This Case Study Shows
This is not a story about variable annuities being bad. It is a story about a product that no longer matched the client’s needs. When they bought the VA at 55, they wanted growth potential and were comfortable with market risk. At 63, retired with a pension and Social Security, they wanted safety and certainty. The product had not changed — they had.
The expensive income rider they never planned to use was costing them over $2,000 per year. The M&E and subaccount fees were another $5,800. Combined, that is nearly $8,000 per year for features and risk exposure they did not want.
The 1035 exchange solved every problem: eliminated all fees, removed market risk, guaranteed a rate for five years, and did it all tax-free. Their $45,000 in gains deferred to the new contract — no taxes due at the time of transfer.
When This Does NOT Work
I would not have recommended this exchange if:
- They were still in the surrender period (charges would have eaten into the transfer)
- The GLWB rider had a high legacy roll-up rate they planned to activate (some older riders are genuinely valuable and cannot be replicated in new products)
- They needed market growth potential for a 15+ year time horizon
- The VA had been purchased recently and had minimal fees
Every situation is different. But if you are over 60, paying 2%+ in annual VA fees, your surrender period has ended, and you have no plans to use the riders you are paying for — you owe it to yourself to run the numbers on a 1035 exchange. The math often speaks for itself.