An annuity is a mandatory agreement between you and an insurance company that aids in meeting your financial goals at retirement. They usually require that you make an initial lump sum payment or a series of scheduled payments, in exchange for the insurer paying to your annual payments at a future date. Annuities usually delay taxes on investment achievement but then tax withdrawals from the annuity at ordinary income estimates. They also regularly contain a death benefit in the event you die and are unable to withdraw the money as income at retirement.
Annuity Payment Calculator
An annuity calculator computes the present value of a series of equal cash flows to be received in the future. We use this calculator to figure out what a future income stream is worth in today’s dollars – whether it is from an annuity, business, real residence, or other assets.
Present Value of an Annuity
Which would you prefer: $10,000 today or $10,000 received an annual $1,000 installments over the course of 10 years? Instinctively, you probably would choose to receive money right now rather than later.
And yes, you should choose to receive money right now – but for more reasons than “I just couldn’t wait.”
It’s important to remember that $10,000 today is worth more than $10,000 received over the course of time. In other words, the purchasing power of your money decline in the future.
Present Value of Annuity Calculator applies a time value of money formula used for measuring the current value of a stream of equal payments at the end of future periods. This is also called discounting.
For example, you’ll find that the higher the interest rate, the lower the present value because of the greater the discounting.
Present Value of an Annuity
C = Cash flow per period (payment amount)
i = Interest rate
n = Number of payments (in this calculator, derived from the payment interval and number of years)
Annuity Payment Calculator term and Conditions
- Annuity – A fixed sum of money paid to someone – generally each year – and usually for the rest of their life.
- Payment or Withdrawal Amount – This is the total of all payments received (annuity) or made (loan) receives on the annuity. This is a stream of payments that occur in the future, stated in terms of nominal, or today’s, dollars.
- Annual Interest Rate (%) – This is the interest rate earned on the annuity. The present value annuity calculator will use the interest rate to discount the payment stream to its current value.
- Number of Years to Calculate Present Value – This is the number of years over which the annuity is expected to be paid or received.
- Payment or Departure Frequency – The payment or departure frequency you want the present value annuity calculator to use for the present value calculations. The interval can be monthly, quarterly, semi-annually or annually.
- Present Value of an Annuity – Based on your inputs, this is the present value of the annuity you entered information for. The present value of any future value lump sum and future cash flows (payments).