Annuity Calculator Information
Overview
Annuity Calculator helps you calculate annuity payments, present value, and future value for retirement income planning. Enter your payment amount, interest rate, number of periods, and other details to see your annuity projections. This tool is ideal for anyone planning retirement income, evaluating annuity investments, or understanding time value of money concepts.
How Annuities Work
An annuity is a series of equal payments made at regular intervals. Annuities can be used for retirement planning, loan payments, or investment analysis. Key terms:
- Ordinary Annuity: Payments made at the end of each period (most common).
- Annuity Due: Payments made at the beginning of each period.
- Present Value: The current worth of future annuity payments.
- Future Value: The total value of annuity payments at the end of the term.
- Compounding Frequency: How often interest is calculated and added.
How Annuity Values Are Calculated
Annuity calculations use time value of money principles. The formulas depend on whether it's an ordinary annuity or annuity due:
- PMT = payment amount per period
- r = interest rate per period
- n = number of periods
Example: $1,000 annual payment, 5% interest, 20 years, ordinary annuity
Types of Annuities
- Fixed Annuities: Guaranteed interest rate and payments.
- Variable Annuities: Returns based on underlying investments.
- Immediate Annuities: Payments start immediately after purchase.
- Deferred Annuities: Payments start at a future date.
- Life Annuities: Payments continue for the annuitant's lifetime.
Frequently Asked Questions (FAQ)
A: Ordinary annuity payments are made at the end of each period, while annuity due payments are made at the beginning. Annuity due payments are worth more because they earn interest for an extra period.
A: More frequent compounding (monthly vs. annually) increases the effective interest rate and results in higher future values.
A: It depends on the type of annuity and how it was funded. Qualified annuities (funded with pre-tax money) are fully taxable, while non-qualified annuities may have tax-free portions.
A: Advantages include guaranteed income and tax deferral. Disadvantages include fees, surrender charges, and limited liquidity.