The present value of an annuity is usually the present worth of future periodic payments from an existing annuity, either at a fixed rate of interest, or discount rate. The lower the discount rate the lower the future payment value. If you plan to buy annuities, make sure that you get the rate of interest and discount rate at the same time. This will allow you to compare them and choose the one with the lowest monthly payment.
You can calculate the payment value by using a present value formula. You should make a few calculations before you buy a structured settlement or annuity as these are usually harder to calculate. A present value calculator is a good way to compare the rate of interest rates, discount rates, and future payment values.
The total payment of the principal plus the accumulated interest over the duration of the contract is called the accumulated principle. Once the contract ends, you are free to invest the cash you have invested or liquidate the annuities. The amount of investment and the duration of the contract also affect the payment value. Once you have the total of your investment and the term of your annuities, you can start calculating the future value.
There are two types of annuities; they are variable and fixed. Fixed annuities guarantee a certain amount of money at a fixed rate of interest. Variable annuities offer flexibility in the future payments. The fixed annuities guarantee a predetermined sum of money at a certain rate of interest. They are not flexible and are only applicable for a given term. A variable annuity is flexible and is suitable for a definite period of time. This is usually a better option when there is a possibility of increase in the market value.
Annuities are not suitable for all people. If you are planning to buy fixed annuities, you have to be in a very good financial condition so that the payments are very affordable. If you are not in such a position to pay the fixed annuities regularly, then variable annuities will be suitable for you.
You have to calculate the income, expenses, and tax return on the type of annuities you are going to buy to find the best type of annuities that offer the maximum amount of tax return. If you buy a variable annuity, there are many different payment options like monthly, quarterly, annual, etc.