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Finance - Index Annuities
Index Annuities have been around since the mid-1990's and contractually guarantee no losses due to poor market performance. Yet Index Annuities earn competitive interest by linking interest to the performance of a market index, such as the S&P 500 Index®.
Most people have heard of Fixed Annuities, which offer a fixed interest rate for a set number of years, and Variable Annuities, which are mutual funds inside a tax-deferred shell.

Index annuities offer the best of both - safety and market gains, respectively - and eliminate the worst of both - low interest and market risk, respectively.

In the example at left, the Index Annuity has a "cap" of 8% interest. The graph illustrates the answer to a basic question: which hurts your account more - a cap or losses?

Index Annuities are great options for 401k and IRA rollovers, which are normally penalty and tax-free events.

If you are interested in learning more about Index Annuities and would like to sit down with us to learn more, we would like you to understand a few basics first:
The Basics of Index Annuities
There are four parts to consider:
  1. Length of the Annuity contract
  2. Cap on potential interest
  3. Bonus to your premium
  4. Commission to the agent
Contact Length - Contracts on a good annuity vary from 6 to 15 years, almost all allowing withdrawals up to 10% annually - not a bad restriction considering spending more than 4.5% drastically increases the likelihood that you will outlive your savings. At the end of the contract, you may withdrawal your full account value.

We recommend shorter contracts. Index Annuities continue to improve every year so you don't want to be locked in too long.

Interest Caps - Interest is capped annually or, more recently, monthly. As mentioned earlier, you participate in some of the market upswing, but rarely all. That difference is what allows the insurance company to guarantee you no risk to your money.

Bonuses - We recommend not getting excited about big bonuses, which can be up to 10% of your initial premium. Bigger bonuses often lower caps and/or lengthen the contract.

We recommend considering products with bonuses of 5% or less. They often offer higher caps which typically yield better results than higher bonuses with lower caps.

Commissions - A firm or agent who assists you with an Index Annuity is compensated by the insurance company. As a general rule, larger commissions often mean longer contracts, lower caps, and/or smaller bonuses. Index Annuities with lower commissions are generally much more favorable for you. Not every agent will be willing to divulge their commission, so it is important to find someone you can trust.

In addition, Index Annuities are tax-deferred vehicles, great for someone maximizing his or her IRA and/or 401k contributions. You will learn more about tax-deferral on the next page.

Four Peaks Planning, Inc. uses independent research firms to help us guide you to the most rewarding Index Annuities available. Please call us and we will come visit you to explain your options and answer any questions.


If you have questions or would like to learn more, please call (480) 229-6220 or send a message by clicking the email address above.
Important: Please consult with Four Peaks Planning, Inc. before undertaking any actions. The information in this web site is provided with the understanding that the publisher is not engaged in rendering legal, tax or investment advice. While every attempt has been made to provide current and accurate information, neither the author nor the publisher can be held accountable for any errors or omissions. You agree not to hold any employee of Four Peaks Planning, Inc. liable for action you take from the information on www.fourpeaksplanning.com.

* Past performance does guarantee future returns. S&P500® is a trademark of The McGraw-Hill Companies, Inc. Annuities are not sponsored, endorsed, sold, or promoted by Standard & Poor's and Standard & Poor's makes no representation the advissbility of purchasing an annuity.