This **annuity payment calculator** estimates the monthly and the annual fixed annuity payments you'll receive from your retirement account or similar during benefits phase. There is in depth information about this financial product below the tool.

## How does this annuity payment calculator work?

This finance tool helps you figure out the fixed monthly and annually income you'll receive from your investment account (usually it is considered the retirement account) over the annuity payout phase. It can even adjust these values with inflation. These are all the variables you need to know in order to perform this type of withdrawals calculation:

- The final balance of your account meaning which is the amount you have accumulated before starting getting paid on a regular basis.
- Time in years you would like to get your payouts. In case of retirement this period is estimated as the difference between the assumed life expectancy and the desired age of retirement. The role of the annuity is to replace the employment income during the benefits payout.
- Interest or return rate is measure of the average earnings on your investment.
- Inflation rate is the average expected CPI that affects the purchasing power of the money. Please note this field is optional.

The algorithm behind this *annuity payment calculator* is based on the formulas explained in the next lines:

- Amount you can retrieve every month = [A1]

[A1]=SB/((1-〖(1+rm)〗^(-N))/rm)

- Amount you can get monthly adjusted with inflation = [A2]

[A2]=([A1])/〖(1+i)〗^n

- Amount you can receive every year = [B1]

[B1]=SB/((1-〖(1+ra)〗^(-n))/ra)

- Amount you can withdraw early adjusted with inflation = [B2]

[B2]=([B1])/〖(1+i)〗^n

- Total interest earned during the payout years in case of monthly payouts = [C]

[C] = ([A] *N) - SB

- Total interest earned during the payout phase by annual payouts = [D]

[D] = ([B] *n) - SB

Where:

SB = At retirement or start balance

rm = Interest or return rate/1200

ra = Interest or return rate/100

-N = Time in years to payout*(-12)

n = Time in years to payout

-n = Time in years to payout*(-1)

i = Inflation rate/100

## Example of a calculation

For instance let's assume a contract with the following terms:

- Final balance at the retirement: $350,000

- No. of years to payout: 18

- Annual return rate: 3.5%

- Average yearly inflation rate of 1% will result in the following:

■ Amount you can retrieve every month is = $2,186.31. If we would adjust this monthly payout with inflation, after 18 years this amount will be equivalent to current money of $1,827.80.

■ Amount you can retrieve every year is = $26,535.89. If we would adjust this annual payout with inflation, after 18 years this amount will be equivalent to current money of $22,184.47.

■ Total interest earned during the payout years in case of monthly payouts is = $122,244.04.

■ Total interest earned during the payout years in case of annual payouts is = $127,646.10.

## What is an annuity?

Typically, annuity defines a financial product designed to help younger people prepare for retirement by saving during working period (accumulation phase) in order to secure a replacement of the employment income during retirement period (payout phase). Upon annuitization period, the financial institution pays out a stream of payments to the individual over a certain time period as agreed.

There are two types of annuities:

- Immediate annuity which in United States is considered an insurance policy which in exchange for a single sum paid by the client, guarantees that afterwards the issuer will make a payment's series to the client over a specific period as negotiated. It should also be mentioned that this series of payments may be either level or increasing periodic payments for a fixed number of years or until the death of the client or by case until spouse’s death, or the longer period between the last two.
- Deferred annuity which is a contract that allows the owner saving and accumulating funds while being employed for getting paid at pension time at regularly or with a single lump sum.

Basically there are 3 types of payments that can be made by the financial institution to the client:

- Payment by a single lump sum only;
- Monthly/early income only;
- A combination between the two meaning a lump sum plus regular annuity payments.

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