Guide to Annuity Calculators

What is an Annuity?

• An annuity is a financial instrument that provides fixed payments over a specified period of time. An annuity provides a distribution of finances, earned on an investment in a fixed schedule; the payments are allocated to the holder of the annuity in quarterly, monthly, biannually or annually installments.

• An annuity is typically used as part of a retirement plan; the instrument is a fixed-income investment that ensures stable income once the holder stops working. The most common form of an annuity is a pension fund; while the retiree was working, the individual paid a portion of his or her salary into a pension fund, which is invested. Once the holder retires, the return on the investment takes the form of an annuity and is disbursed periodically to the individual.


How is an Annuity Purchased?

• The majority of holders work with firms to set up an annuity plan. The holder can either invest in installments or purchase an annuity with a lump sum of cash. Dissimilar to life insurance products, an annuity plan does not require a physical examination and is only used to provide funds for the individual while he or she is alive. When the annuity is affirmed, the holder signs a contract to outline the specific terms of the policy, including the length of time that it covers and whether or not the payments will be fixed.


What is an Annuity Calculator?

• An annuity calculator is a free resource, found online, used to provide numeric solutions to basic queries regarding annuities. For example, an individual using an annuity calculator can accurately postulate how much of an initial investment must be held for a length of time to provide a guaranteed monthly income of a specified amount.

• The annuity calculator is often used by insurance companies to determine the amount of money you will receive on an annual, quarterly or monthly basis. By computing simple statistics and variables relating to your specific plan, the annuity calculator will accurately predict the amount of your fixed payments. In essence, all you need to know, to compute your fixed payments, is the amount of money invested into the annuity.

• In addition to postulating fixed payments, the annuity calculator will tell you how much money you need to pay into your annuity to properly life your life once you retire. Using your income and your expected annual costs after you retire, the annuity calculator can offer a figure that will establish a monetary retirement target.


Where do I find an Annuity Calculator and what Figures do I need?

• The annuity calculator is a free online resource that can be obtained on nearly every insurance website. The annuity calculator is a simple tool that only requires you to enter the basic figures associated with your annuity contract. That being said, when entering these figures be sure to select the correct type (immediate, deferred, fixed or variable) of annuity contract that you hold.