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HOW TO CALCULATE ANNUITIES

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Geaty
Geaty
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My Club My Club : Real Madrid
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PostGeaty Sun 16 Mar 2014, 9:54 pm

As a reminder, annuities are methods of saving on a tax-deferred basis. Some annuities are variable. These have mutual funds on the interior, and the owner participates in the gain or loss from the investments. Others are fixed, and the rate of return only varies when the rate changes on the annuity. When you calculate annuities for the payout, the rent remains fixed throughout the payout.

1: Remember that the payout of an annuity is much like the insurance company making a long payment to you. Part of the money comes in form of interest and the rest comes as principal. When you receive an annuity payment, you only pay tax on part of it, the portion that’s interest. When you place your money in the annuity, the right to access any principal goes away and the principal becomes a stream of payments.

2: Estimate your life expectancy using the chart in the resource area. The insurance company that provides the annuity uses a projected life expectancy based on a large population. They don’t know if you are healthy or sick, but they use the numbers on the average. Most women live longer than men do, as shown in chapter18 of table 18.0., so their annuity payment are lower if they are the same age as a man. The number of months until the end of a life expectancy is the total number of payments. If you take a payment over a specific number of years then you use that as the total number of payments.

3: Ask for the annuitization rate. Even though an annuity might pay say six (6) percent in the accumulation. Phase, it does not mean each pays the same interest rate when you liquidize a part of it. During the opportunity to raise and lower it as rates change. Once, you begin annuity payments, the company locks in the amount they pay you. They have to estimate the rate of return for longer period. Even though the rate of return if for a long period of time, usually, when you annuitize in times of high interest rates, your rate of return is higher than it is for low interest rate times.

4: Calculate the payment for the annuity using a formula. The payment equals the principal, times the periodic interest rate, times 1 plus that rate, times the power of the number of payments. This is divided by 1 plus R times the number of payments after you subtract one from that answer. The formula is payout = P x R x (1x R) exponent N/(1+R).”P” is the original principal “R” Is the periodic interest rate. “N” is the total number of payment you receive.

5: You can make the calculation easier. If the formula sound confusing, the calculation is easier if you use the annuity payment calculator located in a Resources section. You can use mortgage payment calculator too, since the principal is the same, simply put in the original principal, the annual interest rate and the number of years to pay

6: Estimate the amount of money you will have by the time you retire. You can calculate the future value of an annuity with an ordinary calculator if you put in a lump sum and add no more by multiplying the amount by 1 + the interest rate for the number of years that you have until you retire.

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