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Know How to Calculate Lump Sum Payouts of Annuities

By Edited May 24, 2015 0 0

When considering whether you should investment in annuities, knowing exactly how to calculate lump sum payouts of annuities can assist in deciding which annuity plan is ideal for you.

 Annuities are a capital investment fund that is paid out when people retire. Annuities are sometimes referred to as life assurance plans because as opposed to life insurance which is paid out when a person dies as a large payment, annuities are paid out once a person reaches a predetermined age, meaning they can create stable income for themselves when they retire.

Annuities should not to be compared with pension as pension funds can be invested into an annuity to increase pay out and investment.

You should know that there are currently several kinds of annuities including:

  • period certain,
  • joint-life,
  • life
  •  life with guaranteed term.

 

Each type of annuity has its own payment structure and rate. The challenge that most people encounter when considering annuities is determining how much the projected pay-outs will be. Towards this end there are two main ways that annuities can be paid out: (1) on a monthly basis (similar to a salary) or as (2) predetermined lump sum pay-outs.

 

Two major factors affecting the estimate of first payout of annuity plans are: annuity length and the starting principal. The annual growth rate is important factor because it dictates how big your annuity will grow over a period of years. An annuity calculator is essential to calculate how much the initial payout amount would be based on the annuity plan and investment size you choose. If you elect to have a large amount paid to you, the interest rate of the principal amount you paid into the annuity over a period of time will change.

Key things to remember when figuring out what the payment estimate of your annuity include

  • gains from  interest over a period of time,
  • when its cash out or systematic withdrawal stage occurs

Both of these factors affect your interest rate that you bought into. Therefore the lump sum payment will be calculated by the amount you want to withdraw matched against the intervals of withdrawals and your starting principal investment amount as well as the annual growth rate and length of the annuity. Together these will determine how much your initial pay-out will be.

To help you estimate your annuity payout, there are many online annuity calculators available, as well as many informational websites that can help you to understand the intricacies of planning, establishing and managing annuity accounts. Utilizing the services of financial advisors is also a wise course of action—and organizations such as AARP offer such services as part of their membership benefits package.

It may also be helpful to compare annuities against their alternatives which include the following:

  • Variable Annuity With A Guaranteed Minimum Withdrawal Benefit Rider
  • Retirement Income Funds As An Alternative To An Immediate Annuity
  • Withdrawal Rate Strategies For Creating Retirement Income From A Portfolio
  • Laddered Bond Portfolio

Each of these alternatives requires careful research and comparison against the standard immediate annuity plan, and are easily researched both online and with the help of a financial planners specializing in retirement income. 

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