Annuity Calculator
Calculate annuity payments, present value, and future value. Compare ordinary annuities and annuities due, and understand how annuities can provide income in retirement.
Annuity Results
Annuity Analysis
Ordinary vs Due
Understanding Annuities
An annuity is a financial product that provides a series of payments over time. Annuities can be used for retirement income, insurance purposes, or to accumulate wealth. Understanding the different types and calculations is crucial for making informed financial decisions.
Types of Annuities
| Type | Description | Payment Timing | Use Case |
|---|---|---|---|
| Ordinary Annuity | Payments made at the end of each period | End of period | Most common type |
| Annuity Due | Payments made at the beginning of each period | Beginning of period | Higher present value |
| Fixed Annuity | Guaranteed payments and interest rates | Varies | Conservative investors |
| Variable Annuity | Payments vary based on investment performance | Varies | Growth-oriented investors |
| Immediate Annuity | Payments begin immediately after purchase | Immediate | Retirement income |
| Deferred Annuity | Payments begin at a future date | Future date | Long-term savings |
Annuity Formulas
Present Value of Ordinary Annuity
PV = PMT × [(1 - (1 + r)^(-n)) / r]
Where: PV = present value, PMT = payment, r = rate, n = periods
Future Value of Ordinary Annuity
FV = PMT × [((1 + r)^n - 1) / r]
Where: FV = future value, PMT = payment, r = rate, n = periods
Payment Calculation
To find the payment amount for a loan or annuity, rearrange the present value formula:
PMT = PV × [r × (1 + r)^n] / [(1 + r)^n - 1]
For ordinary annuities (payments at end of period)
Key Considerations
- Time Value of Money: Money received sooner is worth more than money received later
- Interest Rates: Higher rates increase both present and future values
- Payment Timing: Annuity due has higher value than ordinary annuity
- Compounding Frequency: More frequent compounding increases returns
- Inflation: Real returns must account for purchasing power changes
Applications
- Retirement Planning: Calculate required savings for retirement income
- Loan Payments: Determine monthly payments for mortgages or loans
- Investment Analysis: Evaluate annuities as investment options
- Insurance Products: Compare annuity-based insurance products
- Business Valuation: Calculate present value of future cash flows
Tip: When comparing annuities, consider fees, surrender charges, and guarantees. Annuities can provide steady income but may have high costs and limited liquidity. Always consult with a financial advisor before purchasing an annuity.