What Is a Market Value Adjusted (MVA) Annuity?

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Learn how market value adjustment annuities work. Understand MVA penalties, interest rate impacts, and how they affect early withdrawals from fixed annuities. Have you ever heard of a market value adjusted annuity ? If you are planning for your retirement income, then you may be considering an annuity as one of your options. Of course, there is a number of possibilities when it comes to purchasing annuities . So, it is important to understand clearly what annuities are so you can make sound financial decisions. In cases when you are looking for tax deferral and an instrument which can offer safe growth and reliable future income, a fixed annuity can be the perfect option. These typically entail an average contract of seven to twelve years and guarantee a minimum annual interest rate. While the duration of the contract and interest rates are important to consider, you should also take into account whether the annuity is subject to a Market Value Adjustment (MVA). It’s common for an MVA to be attached to fixed annuities, and as you probably noticed, it’s these contracts with an MVA that are called “market value adjusted annuities.” Before making a decision, it’s important to know what a market value adjusted annuity is. So, let’s get into it. Understanding Market Value Adjustments You are likely to notice that MVA annuities provide higher interest rates than regular fixed annuities. This is due to the fact that by including a market value adjustment in the agreement, the insurance company is able to share some of the risk of its investments with the annuity owner. That said, the risk only comes into play if you withdraw more than the permitted annual amount before your surrender period is up – or you end your contract, again, before the surrender period is over. Typically, an insurance company will allocate a majority of your annuity premium in low-risk, long-term bonds or similar instruments, thus generating an interest rate and promising a specific interest rate to you over time. Over a longer period of time, market fluctuations do not have a significant impact on the interest earnings. However, if you decide to pull your money out earlier and the interest rates have gone up, then the insurance company would lose money. Therefore, i