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How to Calculate an Annuity Payout

How to Calculate an Annuity Payout

There are many options available to you as an investor, and among those options are annuities. Annuities are contracts made with insurance companies in which you pay money into the annuity for a period of time, and then receive the money back over time after a certain point (like a retirement plan). The annuity will gain money for you on a tax-deferred basis, making it a great choice for a retirement investment. Withdrawing the money before a certain age will involve penalty fees, so it is best to wait for the right age before you begin withdrawing money from your annuity. In order to make the best, most well-informed decisions, you will need to know what sort of annuity payout you can expect to receive once you pass that particular age.

There are different methods for receiving your annuity payout, so you will want to understand your different options. The two most common are the annuitization method and the systematic withdrawal schedule. The annuitization method helps you by offering some degree of guarantee that you will have a certain monthly income over a specific period of time. This can be calculated on your life expectancy, which tends to have the highest payout. Or it can be calculated on a joint life expectancy of you and your spouse so that your spouse can continue gaining the benefits of your annuity after you pass away, though this has a slightly lower payout. Another option is to have it calculated over a specific period of time such as ten or fifteen years, which guarantees money over that time (and if you pass away before that time is up, your beneficiary will get the remaining funds). The other calculation is a mix of life expectancy and a set period of time, so that you get the guaranteed amount for the rest of your life, but it also will pay the rest to your beneficiaries if you die sooner than expected.

The systematic withdrawal schedule, on the other hand, gives you more control over when you get your distributions of money, but there is no guarantee that you will keep getting money for the rest of your life, like in the annuitization method. In the systematic withdrawal schedule method of annuity payout, you can decide how much you want to withdraw from your annuity and how often those withdrawals happen. But you have to determine the best choices for your life expectancy. There is the chance that you will withdraw too much each time and wind up running out of money before you run out of life.

In order to calculate your annuity payout, you will need to have an understanding of the likely inflation rate over the next several years. When you know that and how many years you have until you retire, you can then calculate how much money you will need each month after you retire. You can use that figure in determining how much you need to invest into your annuity so that you will have the right amount of money each month to live comfortably with financial stability. You can get help calculating this from a broker or financial advisor. Whether you do it yourself or with help, you will need to calculate your annuity payout in order to get the best option for your annuity payout once you retire.

Photo courtesy of The.Comedian.

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