An annuity is a financial agreement entered into between a policyholder & an insurance company. The Annuity Meaning in life insurance refers to an amount invested in regular payments or in a lump sum, & in return, the insurance provider offers a regular flow of income. This payment will either start immediately (immediate annuity) or after a certain period (deferred annuity).
An Annuity Calculator is an online tool that allows you to calculate the estimated payout amount from an annuity plan. It helps in assessing the amount required to be paid towards the principal amount to receive a desired pension amount. It includes providing some details, such as the amount of contribution, expected returns, investment period, & allocation of corpus amount. The calculator will provide you with the monthly pension amount, maturity amount, & returns earned. It makes the retirement period hassle-free, secure, & stress-free.
How Does an Annuity Calculator Work?
The formula used by an annuity calculator to calculate Future Value is as follows:
FV = PMT * [(1 + i) ^ n - 1] / I,
Where,
- FV = Future Value of an Annuity
- PMT = Payment amount made at each interval, like a monthly payment
- i = Interest rate per compounding period, which means annual rate divided by the number of compounding periods per year
- n = Total number of compounding periods
The outcome of an annuity calculator will be:
- Total interest earned
- Total maturity amount from annuity amount, which includes-
- Lump sum amount
- Pension wealth at retirement
- Total investment amount
- Monthly pension amount
Illustration of Using an Annuity Calculator
Let us say Mr. X, 40 years old, starts investing INR 30,000 per month in an annuity plan for the next 20 years. He will continue doing so till the age of 60 years, & presuming the return rate to be 9% per annum. Additionally, 40% of the corpus is allocated towards a monthly annuity, & the remaining towards the lump sum pension fund. The results shown by the Annuity Calculator would be:
- Total Investment Amount = INR 30,000 per month for 20 years = INR 72 lakhs
- Returns Earned at 9% per annum = INR 1.3 crore
- Monthly Annuity Amount = INR 40,374
- Total Maturity Amount = INR 2.02 crore
- Total Lump sum Pension Fund = INR 1.21 crore
- Annuity Pension Amount = INR 80.7 lakh
Types of Annuity Calculators
When you are done understanding the Annuity Meaning, let us discuss the different types of Annuity calculators:
Immediate Annuity Plans Calculator
The payout under this plan starts immediately after the investment has been made, being most common amongst retirees. The calculator takes into consideration certain factors, such as interest rate, deposit amount, frequency of payout, etc., to make calculations.
Deferred Annuity Plans Calculator
This calculator helps calculating the payout which will start at some future date, being most common. This calculator best suits long-term planners which has an objective to maximize the accumulation of wealth before the retirement period starts.
Fixed Annuity Plans Calculator
This calculator makes estimates, which includes consistent payouts, which are not affected by the market fluctuations. These plans offer stability in income, which best suits risk averse individuals.
Variable Annuity Plans Calculator
This calculator makes an estimate depending on the market fluctuations, making it best suitable for those individuals who are willing to accept the risk & get higher returns.
Steps to Use an Annuity Calculator
Ensure that you have understood the Annuity Meaning & its different types before learning the steps on how to use the Annuity Calculator.
Step 1: Select the Appropriate Annuity Calculator
Choose the appropriate annuity calculator that best suits your comfort, i.e. one that is easy & convenient to use. The insurance company selected should have a good reputation in the market, its reviews can be checked on online portals.
Step 2: Provide Your Personal Details
Input your personal details, such as age, starting date of receiving payments, sex, etc., accurately.
Step 3: Add Your Amount to be Saved
Input the desired amount to be saved towards annuity, which can be either a regular payment or a lump sum.
Step 4: Choose the Type of Annuity
From the different annuities available, choose the most desirable one that will best suit your requirements.
Step 5: Choose the Frequency of Payment
Select the frequency of payment, i.e. monthly, quarterly, semi-annually, or annually, that best suits you.
Step 6: Choose the Duration
In the case of a deferred annuity, you are required to mention the starting date from which you want to start making payments. The starting date can either be immediately or some later date.
Step 7: Review the Outcomes
After clicking the option "Calculate", the Annuity Calculator will display the results, i.e. how much funds will be received & for how long. Also, it will show whether it will be monthly or annually, depending on the duration chosen in the last step.
Step 8: Check Different Situations
You can also evaluate different scenarios by looking into what impact it has by changing the figures, i.e. the amount to be saved, & changing the annuity plan type.
Benefits of Using an Annuity Calculator
Provided are the benefits of the annuity calculator
- It follows some simple steps, hence making it easy to understand. It involves entering the input details, letting us know the payments to be received in future.
- By assessing the amount that will be received from the annuity, it thus helps in better retirement planning. It lets us know how much will be saved for annuity & how much will be received in future.
- There are no complex calculations involved, hence saving time as compared to manual calculations.
- It helps you make informed decisions by providing easy-to-understand & output & clarity of future receipts.
- It helps you find the most suitable plan depending on the inputs provided, i.e. amount to be saved, type of annuity, or payment frequency, etc.
Conclusion
It is an important online tool that helps in retirement planning with clarity & confidence. It helps you with a list of the best annuity plans available, allowing you to meet retirement objectives with comfort & security. This tool lets you know the amount that would be received post-retirement, helping you make informed decisions.
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