Calculating Your Annuity Payments

Calculating Your Annuity Payments
Annuity payments provide one the strength and security that one needs when he or she doesn't work anymore. It is a form of sustenance for one's retirement years that come in periodic payments. It can also be considered as a retirement investment vehicle, especially if you want to make most of it. But fully understanding how it can work to your advantage can help you plan for your future and that of your kids. Here are a few tips on how to compute for your estimated future income:
1. Identify the type of annuity you want to receive. Annuities come in two forms: fixed and variable. A fixed annuity generates a guaranteed and fixed amount of payout, while a variable one depends on market performance. In terms of the payment, the annuity can be deferred or immediate, meaning you can either delay the payment until a certain time or you can already claim it following your first contribution.
2. Select your annuity payout term. The most common payout option is for the full annuity amount to be given to the claimant and the rest to be given to their beneficiary following the former's death. Another option is to allow the annuity holder's spouse and the holder to benefit from the payout for the remainder of their life or a combination of the other two options.
3. Determine the annuity details, most importantly, its interest rate and principal balance. Take note though that the resulting amount of the payments would vary depending on your chosen annuity terms and payout options. Generally, the formula is as follows:
Annuity Value = Payment Amount x Present Value of an Annuity (PVAO) factor.
You can get a copy or copies of a table of the (PVAO) factor from your insurance broker or company. It can also be searchable on the web.
4. Now, if your annuity payment won't be starting out in the next couple of years, you can adjust the calculation by finding out the future value of your present principle balance. A future value figure can be requested from your insurance provider or online. Basically, it calculates the amount of your annuity and the rate of interest it will get in a span of years until you start receiving the payouts. If you want to know the monthly payments, you can simply divide the interest rate by 12 and the periods as well by 12.

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