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Annuity Formula

Are you looking forward for an enjoyable and hassle-free retirement days? The very best thing to do is to invest as early as possible so that you will reap the fruits of your labor sooner or later. If you will be saving at an early age, you will also enjoy your investment earlier. There are various companies that are offering different choices of annuities. In order to have a clear understanding about how to apply for annuity, it is safe to ask for an advice from experts.

If you want to know how much you need to invest and how much you are going to receive during your retirement then compute it using the annuity formula. You also need to consider inflation, for once your annuity is protected then it will not create any changes for inflation.

Calculating Annuities

This is how to compute the present and future value of an annuity formula:

  • P = sum deposited at the end of each year
  • r = the interest rate, as a decimal
  • n = number of years the annuity has run
  • N = total amount accumulated at the end of n years
  • N =  (P/r) ((1+r)n -1)

Annuity is the amount of money given back to an investor yearly for a specific number of years depending upon what was laid down in an agreement. Example: If I am paying $10 dollars a month for five years then it will be given back to me after a given period of time in yearly basis sometimes for the rest of my life. Since annuity is different from life insurance, it will not require you to have physical examination. If in case you will die, the annuity will also end. In exceptional instances, the annuity can be given to the surviving children or spouse if it was contracted beforehand.

Using Annuity Loans

Annuity can also be loaned by the investor.  This is what we call annuity loans and can be done if the investor has delayed annuity. An investor can loan an amount equivalent of one half of his account balance. If he can pay his loan on the specified time then this will not be taxed. Annuity loans can help the investor save money on taxes and are commonly preferred compared to withdrawals. This is because withdrawals are directly subject to any applicable income and penalty tax.

If I am an investor, I will find a company that would give me higher annuity rates of my annuity.  If I want to know the increase rate of my annuity for a particular year then I will first determine as to how much I will pay my annuity per year. Example: if I save $100 a month within five years I will expect a total annuity of $6,000 and this amount will earn a 2 percent interest per month.

If you want your annuity to grow faster aside from the interest earned monthly, you can put your annuity in an equity index annuity. What is it? It is allowing anyone to share in the stock market’s ups and not the downs which are very important if you want to preserve your principal annuity. Equity indexed annuities (EIA) – are products of low-risk insurance. In contributing premiums to EIA, a minimum rate will be returned by the insurance company over time. The company policy promises the plan holder that whatever happens, your annuity will be protected and will still earn an interest. You can get professional help getting annuities explained by consulting with a professional investment advisor today.

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