## Annuity calculator

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# Annuity Calculator - Annuity Explained

Annuity is the amount paid in a series of fixed intervals. This term is more often considered in the context of retired persons or individuals planning for a guaranteed income after their retirement. Annuity is often seen as a safer way to meet living and medical expenses after retirement.

Amount paid for pension plans, insurance premium paid for retirement purpose, deposits made regularly to the savings account, etc. all come under annuity payments. Individualsa who plan for a fixed guaranteed income after the retirement pay a certain amount regularly to the insurance companies that offer such annuity plans.

Individuals with a lump sum amount of money, such as huge savings or winning lottery money or receiving inheritance amount, etc. also prefer to invest in annuity plans.

In an annuity, there are two phases involved:

• Accumulation Phase: This is where the person keeps paying the designated amount for a specified time to the company that is offering the annuity plan. Depending on the comfort of the payee, the annuity premium can be paid weekly, monthly, quarterly, half-yearly or annually, throughout the accumulation phase.
• Annutization phase: Once the term of payment gets completed, the benefiter starts receiving the payment from the company throughout this phase.

#### ☛ Types of Annuities

Depending on the type of payment, duration or benefits, annuities are classified into various types. Here we shall discuss the most commonly referred types of the annuity as follows:

• Based on structure: The payee can choose that upon annuitization, payments can be made life long for the payee or the spouse after his death. Or he can also choose a fixed time for payment regardless of how long the payee lives.
• Based on payment: If the payee pays a lump sum, he can avail annuity benefits with immediate effect. Or if the payee wishes, he can opt for the benefits after a specified period of time.
• Based on fixed or variable nature: Fixed natured annuities offer safer regular payments at regular intervals. Variable nature annuities carry risk but offer higher returns in case the market performs well.

#### ☛ Terms and calculations related to Annuity

• Calculating the value of the annuity amount at the end of the accumulation phase is called its valuation. The valuation of an annuity considers various factors such as:
• The present value of money
• The future time value of money
• The interest rate
• The tenure of payment
• If the payee knows how many numbers of payments are to be made from his side, such annuity is called Guaranteed annuity or Certain Annuity.
• If the amount paid for annuity accumulates interest before the next payment is due, it is called annuity immediate.
• The amount that a payee pays at the beginning of every annuity terms is called Annuity-due.
• If the annuity payments continue forever, it is called perpetuity.

#### ☛ Parties involved in Annuity

In an annuity, there are four major parties involved:

• Owner of the contract: This can be the individual who has taken the annuity contract or the company that is providing annuity benefits to its employees.
• Annuitant: The person who will pay the annuity installments and who will receive the annuity payments during the Annutization phase.
• Beneficiary: The person who is entitled to receive the benefits in case of the death of the annuitant.
• Insurance Carrier: this is the insurance company that handles the annuity amount and provides the benefits to the annuitant as per the agreement.
People always live forever when there is an annuity to be paid to them. – Jane Austen

Besides serving as a foolproof method for guaranteed income after retirement, an annuity offers many advantages: Tax benefits: Annuity income enjoys tax-deferred status. Besides, there is no upper cap on the amount that can be invested in annuities.

• Safer option: Old age is not something one wishes to take risks. It would be wise to invest money in safety plans that ensure regular and guaranteed incomes. Annuity plans are safer when the plan is not devised according to market risk. Even in the case of annuity plans linked with market risks, the returns are higher in case the market performs well. However, the benefiter should clearly understand before choosing market-based plans.
• Wise choice to invest lump sum: When a person receives a lump sum in his earning age, an annuity is the best and safer option to secure the future of his and his spouse. Annuity carries guaranteed income benefits to him and the beneficiary; thus it is the best way to make use of a lump sum money to secure future.

#### ☛ Why does one need an annuity plan?

All said and done; annuity is becoming a must to possess a plan for everyone owing to two factors:

• The volatility of jobs and reduced career spans, compared to earlier generations.
• Increased life span and likewise increase in medical expenses and living expenses after the retirement.
Buy an annuity cheap and make your life interesting to yourself and everybody else that watches the speculation. – Charles Dickens

#### ☛ Why use Calculator Hut’s Annuity calculator?

CalculatorHut has a wide range of online calculators for free. It is a preferred destination for students and professionals working on many scientific calculations involving maths, physics, chemistry, etc. It also hosts various online calculators for free that calculate various parameters related to vehicle mileages and other readings too. Health enthusiasts also use its full range of online health calculators for free to calculate their BMI, calories and other health parameters. This annuity calculator is one of the amazing calculators that comes from its massive library of online financial calculators for free.

Thus, with vast experience in devising online scientific and finance calculators that make life simple for its users, CalculatorHut has its annuity calculator online for free that calculates the present and future value of annuity given the payment, interest rate and the term of payment. What’s more? It can calculate in three different currencies and is user-friendly in approach.