Your annuity can be thought of as an insurance contract in which the purchaser pays a fixed amount each month, with interest, for a pre-determined length of time. At the end of the contract the purchaser must have the option of cashing in the annuity for a lump sum payment. With this in mind, many people purchase an annuity and later discover that the amount they have paid into the annuity does not cover the total amount of the deferred interest. Here are some tips to help you find out what your annuity may lack.

The value of your annuity is basically the present value of all your future annuity payments. This includes the initial payment and interest. The discount rate of return is also a major part of the equation. With annuities, your future payments are reduced in value depending on the discount rate on your annuity. When purchasing an annuity check to see if it has a guaranteed minimum interest rate and maximum return.

One other thing to look for is how the annuitant calculates their monthly interest rate. If they use a standard amortization calculator, you may be getting premature results. Because there are no set rules governing how the calculation is done, different plans calculate the value of their future payments in different ways. For an example, some plans allow for adjustments to the value of the account after a certain number of years while others base the present value on an adjusted gross monthly interest rate over the prescribed five years.

Another important consideration is how much of a lump sum the annuitant is willing to receive. This can be determined by looking at their personal finances, including current and future income. The more money they are willing to surrender, the lower their monthly payments will be over time. The sum of the present value minus the amount for early withdrawal will give you a monthly payment that is close to their total regular earnings. It’s also a good idea to look at the annuity calculator for the cost to you of a particular plan.

You must also look at how much of your annuity will go to pay the initial payment. If you are getting a fixed annuity that will remain untouched over the years, your payment amount will be determined by how much market value will be left after the deferred interest charges are applied. The more market value left, the larger the initial payment will be. A portion of your payment, however, will go into a deferred tax plan so it remains tax-deferred until it is withdrawn. The remaining amount will be invested until it is ready to be made payment.

There are many variables to take into consideration when figuring out the annuity’s present value. These are just a few of them. The best way to go about this process is to hire a professional service who will provide you with all the calculators you need to make this process as simple and painless as possible. These services will keep you updated on changing interest rates and will make changes to your calculation process whenever they feel it is necessary to. Whatever you do, don’t try to do this work yourself. This can lead to some very unfavorable results.