Wealth Management Resources
Geoffrey Johnson, RICP
Financial Advisor



1820 E. Ray Road, Suite A110
Chandler, AZ 85225





Annuity Basics

Fixed Index Annuities

Fixed index annuities help maximize both growth and protection for retirement dollars. Contract owners share in the increase of a stock market index but are not affected when the index declines. This type of annuity has become very popular over the last decade because of its principal protecting features. There are many different kinds of fixed index annuities and it is essential that you choose the right one to maximize its capabilities and interest- earning or income producing potential. Structured properly a Fixed Index Annuity is possibly one way to ensure you never outlive your money.(See An Income You can't outlive.)


Two Fundamental Principals of Fixed Index Annuities:


The First Principal is that of a Time Commitment:

When you buy an annuity you're committing to hold the contract for a specific period of time. The time period can be as short as one year or longer depending upon your needs and desire. However, we believe that the best Annuity contracts typically fall between five, seven and ten years.

A great benefit to a fixed index annuity is that during the contract period you are able to access a portion of your money without having to surrender the entire contract.

The best contracts allow you to withdraw up to 10% per year of the total contract value or premium paid. This penalty free withdrawal can be automatically deposited into your checking account monthly or at the frequency of your choosing. There is typically no limit to the number of withdrawals you can take, as long as it does not exceed the 10% free withdrawal amount in any one year.

Although 10% is the typical free withdrawal amount, Fixed Index Annuities may be liquidate at anytime subject to a surrender charge. This allows the contract holder the option of fully surrendering the contract should extreme circumstances demand it at any time.

The most popular fixed index annuities allow you to take all the accumulated money your contract has earned at the end of the time period with no strings attached and without penalty.


The Second Principal is the Monthly or Annual Cap Rate:

Most index annuities put an upper limit, or cap, on the index-based interest. This is the maximum amount of interest the annuity will earn per year. One popular type of fixed index annuity cap is called the monthly point-to-point or monthly-sum cap. 

Here’s how it works: If you have a monthly cap of 2.5%, you are credited the increase in the index for that month a maximum of 2.5%. If the index increased 5% in one month, your monthly interest would equal the cap. At the end of the year all of the months are tallied and all applicable increases are added to the value of your annuity. A monthly cap of 2.5% can equal a total maximum increase per year of 30% (2.5% x 12 months). So the most you could make in any one year would be 30%, which is the maximum increase. It's important to note that with market fluctuations while its possible, it is not likely you will ever see the maximum gain. Most fixed index annuities currently have a monthly cap of 2% or greater.


What Are The Crediting Methods:

A Fixed Index Annuity is different from other annuities because of the way it credits interest to the annuity's value. Some annuities will credit interest calculated at a set rate in the contract, while other annuities interest may vary due to fund performance.

A fixed index annuity credits interest based on changes in an external index to which the annuity is linked. Most fixed index annuities allow you to choose from a variety of different indices including:

  •  S&P 500
  •  Nasdaq 100
  •  Dow Jones EURO STOXX 50
  •  Barclays Capital U.S. Aggregate     Bond Russell 2000

Although external indexes will affect your contract values, the contract does not directly participate in any stock or other investments. You are not buying bonds, shares of stock, or shares of an index fund, but your interest will be based on the performance of the index you choose to follow. This is why in  a good Fixed Index Annuity you can benefit from the increases of a market index, but not the losses. Is a Fixed Index Annuity right for you? The truth is it may not be or you may not qualify for one. The question is are you  Ready to Find Out If A Fixed Index Annuity is Right For You?


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  • Is some or all of your money at risk?
  • Are you concerned with market volatility?
  • Do you have enough money saved for retirement?
  • Who would fund your retirement or take care of you if you are unprepared?
  • Do you want your principal protected in case of an emergency?

**An annuity is a contract between a contract owner and an insurance company and is designed to meet long-term needs for retirement income. They provide guarantees against the loss of principal and credited interest, and the reassurance of a death benefit for beneficiaries.  Guarantees are based on the financial strength and claims-paying ability of the issuing insurance company.  They also include surrender free withdrawals, potential for tax deferral, and flexible income options including lifetime income.  Any distributions are subject to ordinary income tax and, if taken prior to age 59 ½, a 10% federal tax penalty.


If just one of these items are a concern you need to call us NOW to schedule an appointment at 602-334-4428 or reserve your spot at one of our upcoming workshops here:







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