Annuity Calculator: Determining Annuity Payments

An annuity is basically a contract that takes place between the owner of an asset, i.e. a pension fund and an insurance company. This contract states that there will be a fixed annual income provided, based on the pension fund the individual has. The pension fund is changed into a guaranteed income. Finding out the amount of each payout is made possible by using an annuity calculator. There are two main types of annuities; immediate and deferred.

Immediate Annuities

These are either fixed or variable and payments begin within the first year of issue. The recipient of these annuities gets to decide how long income will be provided and when payments will start. Payments will be received until the amount of the original investment and the interest for this investment is both exhausted.

The calculator used for this type of annuity helps the recipient figure out the amount for each regularly scheduled payout. The data needed for this calculator to function correctly is the investment amount, payment frequency, number of years for the contract, and the expected return percentage. Once these numbers are entered in to the appropriate box on the calculator, the monthly payout amount is listed. Charts are also provided in line, bar, or table form to show the annuity balance versus the total payout amount.

Deferred Annuities

These also are either variable or fixed. People using this type of long term investment are usually saving for retirement. The recipient is able to choose payment amount and the length of time it will be received, same as with Immediate Annuities. The main difference is that these annuities are able to be made into a steady rate of income in the future. They are able to increase slowly and not be taxed.

The calculator for an annuity of this type helps to determine re-invest earnings, as well as the end balance for products that defer. Information that is needed for this calculator include; initial investment amount, annual contribution, number of years on the contract, and the expected return percentage. After this data is inserted into the blanks, the balance and total contributions are both posted. This calculator also provides the same types of charts as the calculator for immediate annuity, showing the balance versus the number of years for the contract.

Each of these calculators has additional boxes that can be checked, depending on if the calculator is for immediate or deferred annuities.

Inflation Adjustment Adjusts payment amount for inflation

Surrender Charges Figures charges that will incur if premature withdrawal is needed

Tax Adjustment Shows what end balance would be without the taxes

Using an annuity calculator to determine if annuities are the right form of investment is a good place to start. It's also a handy tool to help decide which is more appropriate, an immediate or a deferred annuity. These calculators are excellent for forecasting the payout amount and how much each annuity will grow over a determined amount of time. Each calculator is very easy to use and provides instant payment information.