Annuity Calculator is a simple calculating machine that you can find online to calculate the total annuity of yours. This device is present on different websites where you can go and put all the necessary requirements to calculate the right kind of annuity.
For example, there are different calculators available where you can calculate different kinds of annuities from interest rate to payout value or principal value or different types of annuities. Let’s first have a look at what is an annuity and how calculating on your own will help you understand it better.
What is an Annuity?
An annuity is basically an insurance contract that will provide a fixed stream of money for your whole life or for a specified period of time. One can purchase an annuity by either paying the price at once or can get it into the form of installments or they can even start paying once they get their first annuity. Mostly, people use an annuity to fund their retirement after their job is over and they do not have any other way of living.
These are long-term plans and people pursue them to get benefits after a long time instead of few years. People who have targets like security or retirement funding, diversification, and principal preservation go for annuities.
Working of Annuity
The working of annuities starts by converting lump-sum money into a stream of income that a person can use anytime they want. This concept is for the people who do not have any kind of business to fund their living. These people need more than just social security setup but some cash that keeps coming in their accounts every month or year.
Once paid, these annuities will keep on generating as long as the person is living. However, the best thing about an annuity is that you are free and away from the risk of a market crash. No matter what goes on in the market, your money and annuity are always safe and you can get it every month at the same time.
There are different kinds of annuity calculators, for example of if you go for an immediate annuity calculator, you just have to add the premium amount, age in years, and then select the gender. This calculator will tell you the estimated amount of annuity.
You can estimate the monthly payments from an annuity if you know the following terms:
- Price of the annuity,
- The fixed interest rate,
- The frequency of your payments (monthly, quarterly, or yearly)
- And the number of years the annuity will provide you with income.
For example, if a male person sets a 20-year fixed annuity with a principal amount of around one hundred thousand dollars and a growth rate of 2 percent, he will get around 505 dollars every month.
Calculating the Annuity Payments
Calculating annuity payments can be tricky because insurance companies have the authority to set their rates and contract terms. It helps to know the average annuity rates for the type of annuity you plan to buy.
There is a formula also for the investors to calculate the annuity payments. It contains different values such as
- P = Principal
- PMT = Monthly Payment amount
- r = Annual interest rate
- n = Number of payments per year
- t = Number of years of payments
Calculating the Fixed Annuity
A Fixed Annuity can provide a very secure, tax-deferred investment. It can provide a guaranteed minimum interest rate, with no taxes due on any earnings until they are withdrawn from the account. You do not receive a tax deduction on the money you deposit, but you pay no taxes until you begin making withdrawals. There are no annual contribution limits or income limits. A fixed annuity could be a good option if you wish to increase your tax-deferred savings.
In this calculation, you will come across various terms such as starting balance, annual contribution, current age, withdrawal age, etc. All of these terms are mentioned below with their brief definitions for you to understand them better. Put all these values in the calculator and it will calculate all the terms for you in no-time.
It is the initial amount that you will contribute to your fixed annuity.
The exact amount you will contribute to annuity each year.
This is your current age at that time.
Age at Withdrawal
Age you wish to withdraw your annuity balance, the age at that time would be withdrawal age.
Current tax rate
The current marginal tax rate you expect to pay on your taxable investments.
The tax rate at Retirement
The marginal tax rate you expect to pay on your investments at retirement.
Surrender charges are a percent of the annuity balance you will be charged if you withdraw your annuity balance early.
Initial interest rate
This is the initial guaranteed interest rate for your fixed annuity.
Expected average interest rate
This is the interest rate you would expect to average after the initial interest rate is no longer guaranteed.
Minimum guaranteed interest rate
This is the interest rate that is guaranteed after the initial rate has ended.
The Annuity calculator makes the work of the investors easy and reliable for them. It allows them to calculate everything before going to the insurance companies to deposit the funds. This helps them in getting the exact amount while considering everything in the whole process of calculating the value. Moreover, it allows the investors to check the value of the annuity in all kinds of annuity forms to be sure about the one he/she is choosing.