The Art of Calculating Annuity Payments

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Picking up an annuity can be a rather effective option for a person to add to a retirement portfolio.  The basic premise of an annuity is pretty simple:  Deposit funds into an annuity at a fixed time, then receive the payments from the annuity at a later time.  What’s more, the funds can be withdrawn apart from whatever payment schedule is set in the event of a major emergency or a major financially-based life event, such as the purchase of a home.  The structure and flexibility of an annuity payment can appeal to people for several reasons, such as:

This last reason can be somewhat tricky to navigate, if not intimidating.  After all, nobody can know what the future holds.  However, there are a few things that you can do to prepare as best you can.

Steps to Take

The first item you will want to lock down would be to determine what annuity is right for you.  There are essentially two types of annuities:  fixed, which will have a guaranteed payout; and variable, whose payout fluctuates based on investment performance.  Additionally, you can set up your annuity to be immediate, where you can receive payments as soon as you make your initial contribution, or you can set it up to be deferred, meaning that the payments will not occur until a set date.  There is no right or wrong answers here – the style of annuity that works best is essentially based on your situation.

The second step to take is to determine what your annuity payments option will be.  You can set the annuity up to receive the full payment amount over a specific time period with any residual balance after death going to a beneficiary.  You can also set up the annuity to pay jointly between you and your spouse for the duration of the remaining partner’s life.

The next thing to take care of is to take a look at the fine print behind the annuity.  This would involve analyzing details such as the principle balance and the interest rate – details that could have a negative impact on your annuity payments if you are not familiar with their presence.

Finally, you need to make sure you calculate the amount of payments you wish to receive based on your personal situation.  There are an abundance of calculators that exist on online that can aid greatly in helping you figure out annuity payments, based on the different annuity choices that are available to you.  The calculators are pretty easy to use, and can give you a clear picture on how your annuity payments may be like in certain scenarios.

Up to You

Ultimately, once you have this information figured out, how you want your annuity payments to be received is entirely your decision.  Again, there is no right or wrong way here; it is solely up to you and your given situation.

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