This **annuity calculator** estimates the growth of your annuities account consisting in any to all from starting principal, annual or monthly additions or contributions over a certain period of time. There is in depth information on this topic below the application.

## What is an annuity?

In finance, *annuity* generally defines any set of fixed regular payments made within a certain period of time with the aim for instance to achieve a certain amount of money in a savings or retirement account, or for instance with the aim to pay off a certain mortgage debt through monthly payments.

Within US this term is often used with the sense of an annuity contract that represents a written agreement by which a person agrees to let a *life insurance company* manage certain amount of money deposited by case through a onetime payment plus some regular early or monthly contributions, or only by regular additions.

So, annuity is a *financial product* you take from an insurance company that states you agree with the insurer to manage your funds over a specific period of time, with the final aim that the entity to provide you with regular payments starting the moment you specify. In such agreement there are of importance the following aspects:

- The starting amount you have available to invest in, if applicable;
- Annual contribution you can make if the case;
- Monthly addition you can make if the case;
- The term of the contract while you have to make regular contributions;
- A fixed return / interest rate for the savings you deposit or a variable plan.
- The fixed quote for the annuity payout (usually expressed as a percentage) meaning how much income you’ll get every year for a specific period.
- The starting moment when the insurer has to provide you with regular payments (for instance at the retirement age);
- The frequency to get paid: usually it is either annually or on a monthly basis.

## Annuity phases

This kind of product has two phases:

- First one is called the
*accumulation phase*and defines the period of time by which the contract owner has to deposit and accumulate money into account, that are further on managed by the insurer in such a way to ensure the fixed interest rate negotiated or go by a variable rate plan. For this phase our calculation form may help you figure out the growth of your account by taking account of a fixed rate.

- The second one is called the
*benefits*or the*payout phase*by which the client gets regular revenue through the payments the insurer has to make following the terms of the contract. The length of this phase is negotiated by the two parts and there are two options: it may be for a certain number of years or it may last until the client's death.

## How does this annuity calculator work?

This tool forecasts the *growth* of your account by taking into consideration the values provided and whenever specified it can even adjust the end balance with inflation.

The calculations than can be performed with it may include annuity dues or ordinary annuities as well as many combined payment ways such as:

- Only starting principal;

- OR starting principal plus yearly contributions;

- OR starting principal plus yearly and monthly adds;

- OR only annually and monthly contributions.

Its algorithm is based on the standard compound interest and annuity formulas.

For example in case of an account with a starting principal of $100,000, by making an annual additions of $5,000 and a monthly add of $500 over an accumulation phase of 10 years, with 4% return rate and an inflation of 2% this annuity *calculator* will display the following results:

**- In case of annuity due:**

■ After 10 years the end balance will be $284,044.27;

■ Adjusted with inflation the end balance equals in today’s money to $233,015.23;

■ Total principal saved is $210,000.00;

■ Total interest earned is $74,044.27;

** - In case of ordinary annuity:**

■ After 10 years the end balance will be $281,402.93;

■ Adjusted with inflation the end balance equals in today’s money to $230,848.41;

■ Total principal saved is $210,000.00;

■ Total interest earned is $71,402.93;

## Annuity types

In case of purchasing an annuity contract with a lump sum and then starts the payout phase for the client, it is called an *immediate annuity*. This is used by people that before retirement managed to save or invest in other financial instruments such as deposits, assets or stocks. They choose such agreement by using the resources they gained in time.

When making regular payments over a certain period of time, practically when the accumulation takes place during a specific number of years, it is a *deferred annuity*. In this case people settle such account well before retirement and start making yearly and/or monthly payments. This annuity can be classified as fixed or variable depending on the return rate type. A fixed return may be attractive as the insurance company guarantees it won't change, while a variable return may have its own advantage as it allows changing the investing strategy or approach when needed.

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