Annuity Calculator

Use the Annuity Calculator to calculate the return on investment of a lump sum with regular monthly contributions. The Annuity Calculator is ideal for calculation return based on pension investments to understand the total value of your pension in the future and the interest gained on your pension savings.

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Annuity: Turning Your Pension Pot into a Guaranteed Annual Income for a Lifetime

Annuity Calculator. This image provides details of how to calculate annuity using a good calculator and notepad. By using the annuity formula, the Annuity Calculator provides a true calculation of the return on investment of a lump sum with regular monthly contributions

How does it sound to have an investment that can assure you an income for a lifetime? Yes, for a lifetime, it is possible and Annuity can be the vehicle for that. You can choose a plan that suits you and fix an age at which you would like to receive your income. Annuity is a great way to invest in your future with your pension pot. However, since investments are made into the stock market certain risks are also involved.

There are nuances in the tax laws around the world surrounding annuities with countries adopting slightly different policies depending on their political perspective of pensions, retirement age and working after the retirement age. For example, in the UK you can take up to 25% of your pension pot tax free. However, you pay tax on the income generated by the annuity. When you take 25% lump sum tax free cash it becomes mandatory to use the rest 75% to buy an annuity (or any other pension options). Let's explore this in more detail.

What is a pension pot?

Pension pot refers to the total amount that you (and/or your employer) have contributed over the years to save for your retirement. This also includes any capital gains you might have received on this amount. You can either check this amount on the annual statements sent by your service provider or in many cases online on their website.

You are free to use your pension pot as you wish. However, to withdraw the money you should have reached a minimum age set by your pension organization. This age is usually 55. Pension pot funds can also be withdrawn in some special cases, also set by the pension organization.

Choosing annuity for regular lifetime income

You may choose to convert your pension pot into cash or investment that best suit your needs. An annuity converts your pension pot into a regular and steady stream of cash flow that could last for a specified period or for life.

When you choose an annuity you are required to:

  1. Choose the age you want the annual cash flow to start coming in.
  2. Choose the type of annuity scheme.
  3. Know how much you want to invest in lump sum.
  4. How much you can afford to pay on a monthly basis.
  5. Choose the financial institution or insurance company.
  6. Decide on the amount that you want to get annually after the specified period is over.

All this may look difficult but if you have an online calculator to calculate annuity, it's a cakewalk indeed. The Annuity Calculator by iCalculator is here to make these calculations quick and easy for you. Just input the above details along with expected rate to check the tentative returns.

Types of Annuity

There are various types of annuities offered by different financial institutions.

  • Fixed term - This type of annuity pays for a selected number of years; a fixed sum of amount is also guaranteed.
  • Short term - Stop paying after a fixed number of years or upon death, whichever is earlier.
  • Guaranteed period - Pays you for a set guaranteed fixed term. In case of death within the term, the spouse of the deceased will continue to receive the income annually or might be paid in lump sum in some cases.
  • Single life - Paid just to the main beneficiary for life or a set number of years.
  • Joint life - This type of annuity will continue paying the spouse after the death of the main beneficiary.
  • Fixed income - This means you will get the same amount of annual payments year after year for the rest of your life.
  • Increasing income or escalating annuity - This type of annuity comes with two choices : 1) An income stream that goes up at a set rate each year, usually 3% or 5% and, 2) An income that is adjusted each year in line with inflation index.
  • Enhanced annuity - May require higher contributions but pays more than the standard annuity in case you smoke or have a medical condition like hypertension or diabetes.
  • Investment linked - Payments in this type of annuity are subject to market conditions and can vary with stock market fluctuations.
  • Level - This type of annuity pays the same amount of income each year.

Things to consider before buying annuities

Though investing in annuity is quite useful, there are few things that we should consider:

  • Once you have purchased the annuity you cannot change your mind about the selected age, amount of return, schemes and service provided. It is really crucial to choose wisely.
  • Minimum amount of purchase is a requirement by some financial institutions.
  • Flexibility of the value of return should be chosen keeping inflation in mind since it affects the cost of living.
  • Returns on annuity investment can take many years to add up to more than you have contributed.
  • Rates can vary due to the fluctuations in the market.
  • It is important to be aware of the pension scams contacting you with lucrative offers.

At the end we can say that annuity is a great way to secure your future, but it always pays to shop around a little to get the best deal available with the best return on investment. Though there are many service providers out there this is quite possible that your current pension provider has a perfect annuity plan for you. Check, calculate and compare before you make the final decision.