Captain Joe sits in the Station 7 break room with his retirement papers spread on the table. After 28 years on the job, he's just months away from retirement, but one question keeps nagging him: what should he do with his 457(b) money once those steady paychecks stop? He's heard about keeping a "cash bucket," a stash of safe, accessible funds for the first few years of retirement so he won't need to touch his long-term investments right away. The question is whether to use traditional bank CDs or something called a Multi-Year Guaranteed Annuity.
"CDs I understand," Joe tells a younger colleague, "but MYGAs, aren't those some kind of annuity?" His buddy shrugs. Neither of them is quite sure how these options compare or which makes more sense for a firefighter's retirement strategy. In this article, we'll break down the difference between CDs and MYGAs, and show you how to build a solid cash bucket for your well-earned retirement.
What Is a “Cash Bucket” and Why Do Firefighters Need One?
In retirement planning lingo, a “cash bucket” is money you set aside in safe, easy-to-access places to cover your near-term living expenses. For example, you might keep 1–3 years of retirement expenses in this bucket.
This stash protects you from having to sell stocks or other volatile investments during your first few years of retirement if the market takes a downturn. By having cash and stable assets on hand, you can ride out any financial “firestorms” calmly. Instead of panicking about a recession right after you retire, you’d know your bills are covered for a good while.
Typically, this bucket lives in things like high-interest savings accounts, money market funds, or short-term guaranteed instruments (that’s where CDs and MYGAs come in). The goal isn’t to chase huge returns here; it’s to protect what you’ve earned and make sure it’s available when you need it.
Rolling Over Your 457(b): Getting Your Money Ready
Before we dive into CDs and MYGAs, let’s quickly talk about rolling over your 457(b) plan. Many firefighters have 457(b) deferred compensation plans through their city or department, which are similar to 401(k)s but for public servants. When you retire or leave the job, you generally have a choice: you can leave the money in the 457 plan, or roll it over into an Individual Retirement Account (IRA) or another retirement vehicle (such as an annuity).
One big reason retirees do a rollover is to have more investment options (most 457 plans don’t let you purchase bank CDs or personalized annuities within the plan). By moving the funds into an IRA, for example, you could split the money into various buckets: invest some for growth, and put some into safe choices like CDs or MYGAs for that cash bucket.
If you’re retiring in your 50s, pay attention to tax rules here. Governmental 457(b) plans are special, as they allow penalty-free withdrawals at any age once you’ve separated from service (you’d just pay regular income tax on withdrawals). In other words, unlike a 401(k) or 403(b), the 457(b) doesn’t hit you with a 10% early withdrawal penalty if you take money out before age 59½.
457(b) Rollover Decision Guide
Choose the right path for your retirement funds
You're Retiring with a 457(b) Plan
Time to decide what to do with your deferred compensation
Key Question
Will you need penalty-free access to your money before age 59½?
Leave in 457(b)
Pros
- No 10% penalty at ANY age after separation
- Simple and familiar
- Already set up
Cons
- Limited investment options
- Can't buy CDs or MYGAs
- May have higher fees
Partial Rollover to IRA
Pros
- Keep some $ in 457(b) for penalty-free access
- Roll rest to IRA for more options
- Best of both worlds
Cons
- Manage two accounts
- IRA portion has 10% penalty before 59½
- Requires planning
Full Rollover to IRA
Pros
- Maximum investment flexibility
- Can buy CDs and MYGAs
- Often lower fees
- Simpler (one account)
Cons
- 10% penalty if under 59½
- Lose 457(b)'s special benefit
457(b) vs. IRA: Key Differences
457(b) Plan Rules
IRA Rules (After Rollover)
However, once you roll those funds into an IRA or annuity, they become subject to the standard IRA rules, meaning if you withdraw from the new account before 59½, you could incur a 10% early distribution penalty on top of taxes. In Joe’s case, at 55, this is a consideration. He doesn’t necessarily plan to tap his retirement account immediately, but he wants the flexibility in case of an emergency. One workaround could be leaving a portion of money in the 457 plan (to retain the no-penalty access) and rolling over the rest. This is a nuanced decision and shows why tailoring a plan with a professional is so important.
Alright, now Joe’s funds are rolled over and ready to deploy. He’s set up an IRA, which can hold all sorts of assets. The next question: what should he use to build that short-term cash bucket? Let’s break down the two main options on the table.
Interest Rates: What Do CDs and MYGAs Pay?
For your cash bucket to do its job, it should earn a steady return without taking big risks. Both CDs and MYGAs guarantee an interest rate for a set period, which makes them attractive for short-to-medium-term needs. But how do their rates compare? Let’s look at the current environment (as of 2025):
Certificates of Deposit (CDs)
You most likely are well aware of what CDs are. Just in case you don’t, let’s take a quick look at them. CDs are offered by banks and credit unions. You deposit a sum for a fixed term (say 1-year, 3-years, 5-years, etc.) and the bank pays you interest. Lately, CD rates have improved compared to the ultra-low days of the past. In fact, as of late 2025 many of the best CD rates are hovering a bit above 4% APY for multi-year terms. For example, top nationally available 5-year CDs are around 4.1–4.3% annual yield, and even 1-year CDs from some online banks are in the 4% ballpark. These rates can fluctuate with economic conditions (banks adjust offerings as interest rates move), but generally CDs are currently offering solid if not spectacular yields.
Multi-Year Guaranteed Annuities (MYGAs)
These are fixed annuities from insurance companies, and they work a lot like CDs – you give a lump sum and you get a fixed interest rate for a set number of years. The big surprise for many first-timers is that MYGA rates can be quite competitive, often higher than CD rates for the same term. In today’s market, insurers might offer around 5% to 6% (or more) per year on a 3- to 5-year MYGA contract.
For instance, at the time of writing, a 3-year MYGA from a well-rated insurer might guarantee ~6.0%, and a 5-year MYGA could be in the 5.5–6.3% range, depending on the company. Those rates handily beat the ~4% that a 5-year bank CD is paying. Even shorter terms like 2-year MYGAs can offer around 5%+ with some insurers. It’s not a universal rule, but it’s common to see MYGAs outpacing CDs on yield.
CD vs. MYGA Rate Comparison
Current guaranteed interest rates by term length
1-2 Year Terms
Bank CD
MYGA
3 Year Terms
Bank CD
MYGA
5 Year Terms
Bank CD
MYGA
MYGA Advantage: Multi-Year Guaranteed Annuities consistently offer higher interest rates than comparable CDs, often 1.5 to 2 percentage points more. On a $100,000 investment over 5 years, this could mean an extra $8,000+ in earnings.
Important Rate Disclosure
The rates shown above reflect market conditions at the time of writing. Interest rates for both CDs and MYGAs fluctuate based on economic conditions, Federal Reserve policy, and individual institution offerings. Always verify current rates with banks and insurance companies before making investment decisions. Rates shown are for illustration purposes only and should not be considered guaranteed or indicative of future availability.
Why might a MYGA pay more? Insurers have more flexibility in how they invest the money (they often invest in slightly longer-term bonds since you commit your funds for multiple years), and they expect you to stay for the whole term (there are usually penalties if you don’t, which we’ll discuss). Banks, on the other hand, compete for deposits and have certain regulations and overhead costs.
It’s worth noting that both CDs and MYGAs lock in your rate for the term. If you buy a 5-year CD at 4.2%, you’ll get 4.2% every year for five years, regardless of what happens out in the world. Same with a 5-year MYGA at say 6%. That rate is contractually guaranteed for the full term. This can be great if rates fall, because you’re still enjoying the higher yield. Of course, the flip side is if interest rates shoot up in 2026, you might feel “stuck” in a lower rate until maturity. That’s the nature of fixed-rate commitments. One way around that is laddering (buying multiple shorter CDs/MYGAs that mature at different times), but again, more on that later.
Liquidity and Access: Getting to Your Money
With your cash bucket, you also want to know you can get your money when needed. Here’s how CDs and MYGAs compare in terms of liquidity:
CD Liquidity
When you open a CD, you agree to leave the money in the bank for the term length. If you absolutely need to pull money out early, you usually can, but you’ll pay an early withdrawal penalty. Typically, the penalty is forfeiting some of the interest you earned (or would have earned). For example, a common penalty might be 3 months’ worth of interest on a 1-year CD, or 6 months’ interest on a 5-year CD. In practice, this means if you break a CD early, you might lose a chunk of the interest accrual – in some cases even all the interest, if you close it soon after opening.
The key thing is that you generally won’t lose your principal on a standard bank CD by withdrawing early; you’d just give up interest as the “fee” for breaking the contract. Because of this, accessing money from a CD in a pinch isn’t too painful as long as you’re okay sacrificing some interest. No age restrictions apply either. If you’re 50 and need funds, the bank doesn’t care. The only penalty is the bank’s early withdrawal fee. So for someone like Joe, a CD could be a source of emergency cash if absolutely necessary (though ideally his cash bucket is planned so he doesn’t have to break the CD).
MYGA Liquidity
Annuities, including MYGAs, are designed with the expectation that you’ll leave the money in place for the whole term (and often, annuities are longer terms by nature). If you want to withdraw early, surrender charges enter the picture. A surrender charge is basically a penalty the insurance company imposes if you pull out more than a certain amount before the term is up. These charges can be more complex than bank CD penalties.
For example, a 5-year MYGA might have a surrender charge that starts at, say, 5% of the account value in the first year and gradually declines to 1% by the fifth year. If you cash out entirely in year 2, you might give up 4–5% of your money as a penalty, which can eat into your principal, not just the interest. Ouch. The exact penalty schedule is specified in the annuity contract.
The good news is many MYGAs include a free withdrawal provision, meaning you could be allowed to take out up to 10% of the account value per year without surrender charges (after the first year). So, say Joe puts $100k into a MYGA; he might be able to withdraw $10k a year penalty-free if needed. This kind of feature adds some flexibility, letting retirees access a bit of cash in an emergency or for RMDs (required minimum distributions) without breaking the whole contract. Not all annuities have the 10% free withdrawal, but many do, so it’s something to check when choosing a MYGA.
Liquidity & Access Comparison
Understanding early withdrawal penalties and flexibility
Bank CD Liquidity
Early Withdrawal Penalty
Typical Penalty:
3-6 months of interest
Example Scenario
MYGA Liquidity
Surrender Charges
Typical Penalty:
1-5% of account value
Free Withdrawal Provision:
10% annually (penalty-free)
Example Scenario
59½ Rule
One more wrinkle on the annuity side. If your MYGA is not inside an IRA and you’re under age 59½, the IRS would impose a 10% tax penalty on any earnings you withdraw, on top of regular income tax. This is the same rule that applies to IRAs and other retirement accounts. With CDs held in a taxable bank account, there’s no such age-based penalty; you just pay tax on the interest as you earn it. In Joe’s scenario, since he rolled his 457 into an IRA, both his IRA CD and an IRA-based annuity would fall under the age 59½ rule (any IRA withdrawal before that age is subject to the penalty, unless an exception applies).
Plan carefully if you might need to tap these funds very early in retirement. If maintaining penalty-free access is important and you’re retiring super early, you might leave some money in the 457 plan or another avenue as we discussed. But if you’re over 59½ or don’t intend to touch the money for a while, this isn’t a big issue.
In summary, CDs are easier to cash out early. You’ll lose some interest, but not your shirt (and not your principal). MYGAs tie up your money more tightly, and while they often allow limited free withdrawals (10% per year, etc.), a full early cash-out can incur a hefty charge. When constructing a cash bucket, a common approach is to align your CD or MYGA terms with when you’ll need the money. For instance, Joe might use a 1-year CD for money he needs in Year 1 of retirement, a 3-year MYGA for Years 2–4, etc. That way, each chunk comes due when it’s time to spend it, avoiding the need for early withdrawal altogether.
CDs vs. MYGAs at a Glance
Sometimes it helps to see things side by side. The table below summarizes key features of bank CDs and MYGAs, using Protection Red’s colors for a quick comparison:
CD vs. MYGA Rate Comparison
Current guaranteed interest rates by term length
1-2 Year Terms
Bank CD
MYGA
3 Year Terms
Bank CD
MYGA
5 Year Terms
Bank CD
MYGA
MYGA Advantage: Multi-Year Guaranteed Annuities consistently offer higher interest rates than comparable CDs, often 1.5 to 2 percentage points more. On a $100,000 investment over 5 years, this could mean an extra $8,000+ in earnings.
Important Rate Disclosure
The rates shown above reflect market conditions at the time of writing. Interest rates for both CDs and MYGAs fluctuate based on economic conditions, Federal Reserve policy, and individual institution offerings. Always verify current rates with banks and insurance companies before making investment decisions. Rates shown are for illustration purposes only and should not be considered guaranteed or indicative of future availability.
As we can see above, CDs and MYGAs have a lot in common, as both offer fixed rates and principal protection, but they each have their niche. CDs shine for shorter time frames and simplicity, while MYGAs reward you for a longer commitment with higher interest and tax-deferred growth.
Crafting Your Cash Bucket Strategy
Now that we’ve broken down the features, how might a firefighter like Joe actually build a cash bucket using these tools? The answer could be using one, or a mix of both. It really depends on personal needs and comfort.
Let’s say Joe is aiming to cover about 3 years of expenses from his cash bucket. He estimates he’ll need $40,000 per year from his savings to supplement his pension and any other income. That’s $120,000 total set aside for the next 3 years, just to be safe. Here are a couple of ways he could structure it:
CD Ladder Approach
Joe could split the $120k into three CD “rungs.” For instance, $40k in a 1-year CD, $40k in a 2-year CD, and $40k in a 3-year CD. The idea is that in Year 1 of retirement, the 1-year CD matures and provides the $40k he needs (plus interest). In Year 2, the 2-year CD will mature, providing that year’s $40k, and in Year 3, the 3-year CD comes due for the final chunk. This way, he’s always got a CD maturing when he needs cash, and each CD earned a bit of interest along the way. If interest rates were to rise, he could reinvest as each CD matures; if they fall, at least he locked in some decent rates upfront. This ladder gives liquidity each year with minimal penalty risk (since he’s planned the maturities to align with needs).
CD Ladder Strategy
$120,000 split across three years for steady access
Year 1
1-Year CD
~4.0% APY
Year 2
2-Year CD
~4.1% APY
Year 3
3-Year CD
~4.2% APY
How It Works
1-year CD matures → Access $40K + interest
2-year CD matures → Access $40K + interest
3-year CD matures → Access $40K + interest
MYGA + CD Combo
Alternatively, Joe might use a MYGA for the later years and a CD or cash for the immediate year. For example, put $80k into a 3-year MYGA and $40k in a 1-year CD. The CD covers Year 1 expenses. The MYGA is scheduled to mature right around Year 3; however, many MYGAs will allow that 10% free withdrawal after year 1. So Joe could potentially withdraw $8k (10% of 80k) from the MYGA to supplement Year 2 (along with perhaps interest from the CD or other sources), and then in Year 3, either take another 10% withdrawal or, at the end of year 3, the MYGA contract ends and he can pull the remaining funds with all the accumulated interest.
MYGA + CD Combination Strategy
$120,000 optimized for higher returns and flexibility
Bank CD
$40K
1-Year Term
~4.0% APYCovers immediate Year 1 expenses with guaranteed access
MYGA Annuity
$80K
3-Year Term
~5.5% APYHigher interest rate with 10% annual free withdrawals available after Year 1
Withdrawal Strategy
1-year CD matures → Access full $40K + interest to cover expenses
Take 10% free withdrawal from MYGA ($8K) + accumulated CD interest and other sources
MYGA matures → Access remaining balance + all accumulated interest at 5.5% (tax-deferred growth)
During the term, that MYGA might be earning, say, 5.5% guaranteed, a higher rate than a 3-year CD would. This way, he’s leveraged the annuity’s higher interest for the bulk of the money, but still kept a foot in the bank world for near-term needs. The combo approach can be tailored endlessly. For instance, some retirees keep 6–12 months of expenses in a pure liquid cash account (checking or money market), use 1-2 year CDs for the next chunk, and then a 5-year annuity for years 3–5 needs. The details depend on comfort with the products and the rates available.
Conversely, he could do all MYGAs, for example, stagger two contracts, one 3-year and one 5-year, and use the free withdrawal feature as needed each year for income. If the annuities are yielding a lot more, this could maximize interest earnings, but he has to be sure he won’t need over that 10% annually or else face penalties.
All-MYGA Strategy
$120,000 in staggered annuities for maximum interest earnings
MYGA Contract #1
$60K
3-Year Term
5.5% APY- 10% penalty-free withdrawals annually
- Tax-deferred growth
- Matures Year 3
MYGA Contract #2
$60K
5-Year Term
6.0% APY- 10% penalty-free withdrawals annually
- Tax-deferred growth
- Matures Year 5
5-Year Withdrawal Strategy
Maximum Growth Potential
This all-MYGA approach maximizes interest earnings with rates of 5.5% and 6.0% versus typical CD rates of 4.0-4.2%. The staggered contracts provide flexibility, with one maturing at year 3 and the other at year 5. However, you must stay within the 10% annual withdrawal limit to avoid surrender charges.
Which Option is Right for You?
We’ve walked through a lot of information, so let’s go through a quick recap. For short-to-medium-term retirement needs (that 1–5 year “cash bucket” window):
- Bank CDs offer simplicity and liquidity. They’re easy to understand, penalty for early withdrawal is modest (lose some interest), and they’re federally insured, so risk is near zero. However, they might pay a bit less interest and you’ll owe taxes on the interest each year (unless in an IRA).
- MYGAs offer higher interest and tax-deferred growth. They reward you for leaving funds put for a set term, and you won’t be taxed on interest until you actually take it out. They are extremely safe but rely on insurance company guarantees. They are less liquid, so you should be prepared not to touch that money beyond perhaps a 10% annual withdrawal, otherwise surrender charges could apply.
In many cases, a combination approach gives the best of both: some CDs for flexibility and some MYGAs for higher yield. The right mix depends on your specific situation, such as your other income sources (pension, Social Security), your health, whether you might need a chunk of cash unexpectedly, and even your tax bracket.
Another factor is that many firefighters retire relatively young, often in their 50s, with a long retirement horizon ahead. That can mean you want enough safe cash to cover the early years, but you also want to keep the rest growing for the long haul (inflation and longevity are the slow-burning fires to watch out for in a lengthy retirement). Using CDs and MYGAs for the near-term bucket allows you to leave your longer-term investments (maybe stock funds, real estate, etc.) untouched so they can hopefully grow and outpace inflation. It’s a strategy to buffer the transition into retirement.
At Protection Red, we’re not firefighters, but we are a team that deeply respects firefighters and the unique challenges you face entering retirement. We know this stuff can feel complex, but our mission is to help you figure it all out with a professional who uniquely understands the needs of firefighters. So, whether you’re considering laddering CDs, locking in a MYGA, or just wondering how to roll over your 457(b) without costly mistakes, we’re here to help, and we’re ready when you are.
Sources
- https://www.kiplinger.com/retirement/the-retirement-bucket-rule-your-guide-to-fear-free-spending
- https://www.fidelity.com/learning-center/smart-money/what-is-a-457b (See section “457(b) vs. 403(b)” for early withdrawal rules)
- https://www.bankrate.com/banking/cds/cd-rates/ (Bankrate – Best CD Rates, updated November 2025)
- https://www.retireguide.com/annuities/rates/ (RetireGuide – Best Fixed Annuity Rates, November 2025, including CD vs. MYGA comparison)
- https://www.thrivent.com/insights/annuities/myga-vs-cd (Thrivent – “MYGA vs. CD” article, updated April 2025)
- https://www.annuity.org/annuities/regulations/state-guaranty-associations/ (Annuity.org – Explanation of State Guaranty Association coverage limits)
- https://www.annuity.org/annuities/types/fixed/myga/ (Annuity.org – “What Is a MYGA?” overview, including withdrawal features and tax deferral)
