Annuity Calculator

Annuity Formula

Present Value (PV) = P × [1 - (1 + r)^-n] / r

Where:

• P = Payment amount per period
• r = Interest rate per period
• n = Number of periods

This formula helps you determine the current worth of a series of future payments, discounted at a specific interest rate.

Annuity Meaning

An annuity is a financial product that provides a series of payments made at regular intervals, typically used as a retirement income stream. It is often purchased through an insurance company and can be structured in various ways, depending on the type of annuity and the terms chosen.

Annuity Benefits

• Guaranteed Income: Annuities provide a steady stream of income, which can be set for life or for a fixed term.
• Tax-Deferred Growth: Contributions grow tax-deferred, meaning you don’t pay taxes on gains until you start withdrawing.
• Customizable Options: Annuities can be tailored to your financial needs, offering fixed or variable rates, and flexible payment terms.
• Longevity Protection: Some annuities ensure income for life, helping to avoid the risk of outliving your savings.

Annuity Cons

• High Fees: Some annuities come with high fees, such as administrative fees and surrender charges, reducing overall returns.
• Lack of Liquidity: Access to your funds may be restricted, with penalties for early withdrawals.
• Complex Terms: Annuities can have complicated terms and conditions, making it difficult to fully understand the product.
• Inflation Risk: Fixed annuities may not keep pace with inflation, reducing purchasing power over time.