When purchasing a retirement annuity one wants to know how much will the investment fund to pay out in the future. How much should I sell my annuity for? How long should I hold onto my annuity for? These are questions that come to every investor’s mind when considering purchasing an annuity. Annuities pay out a guaranteed interest rate; however, there is more to it than just that.
The current value of an annuity, also called the present value, is simply the amount of money that would be invested at the current date in case you were to receive a check for that amount in your first payment. The level of return or discount rate is also a component of this equation. An annuity’s future payments are adjusted based on the discount factor. Thus, the higher the discount factor, the lesser the future value of your annuity.
To calculate the present value, you use a spreadsheet known as a life-cycle income calculator. This calculator can be found online and can be used for retirement plans with variable interest rates. In this example, you enter in the start date and then select the number of payments expected, and the number of payments received during each year. You will need to adjust the values for inflation to arrive at the value of your annuity. Then, multiply both numbers to get your annual total.
Your annuity advisor will be able to help you find the best present value for your money, depending on your retirement plan and other factors. With many different financial advisor firms now available online, finding the right Annuity that matches your needs can be simple. Some advisors provide their customers with calculators that allow them to enter in the details of their retirement plan, and then compare the results with their expected retirement payout. Using these calculators is not limited to a particular type of annuity; instead, they are general guides to show what your annuity could be. However, an Annuity Calculator can help you determine the best deal for your particular situation and give you a good idea how much you could stand to gain or lose if you took out the annuity.
To learn more about the concepts behind annuities, it is helpful to know some of the terms and definitions. A term known as Time Value Of Money (TOVM) shows how the amount of time it will take for your annuity to earn its interest. Time value can be viewed as the amount of time it will take for your lump sum to equalize with your payments. A term called Annual Percentage Yield (APY) is used to determine how effectively an investment will perform over time.
A financial advisor may also use the term surrender value, which compares the surrender value of a policy to the current market value. The surrender value is generally updated each year and is subtracted from the current value to determine how well the annuity will perform in relation to other investments. Understanding these concepts and using them to help determine what type of annuity you should choose for your retirement planning can be a valuable tool. If you would like to learn more, it is helpful to contact a qualified financial advisor who can answer any questions you may have. A reputable advisor will be able to educate you on the fine details of annuities, allowing you to make the best possible decisions for your future.