Growing Annuity Calculator
Calculate the future value or present value of annuities with increasing payments. This calculator accounts for payment growth, making it perfect for retirement planning with inflation.
Growing Annuity Results
Payment Schedule
Growth Analysis
Growth Factor: 0.00x
Average Payment: $0
Growth Impact: $0
Tip: Growing annuities account for inflation and increasing needs
Understanding Growing Annuities
A growing annuity is a series of payments that increase at a constant rate each period. Unlike fixed annuities, growing annuities account for inflation and increasing financial needs over time, making them ideal for retirement planning.
Growing Annuity Formulas
Future Value of Growing Annuity
FV = PMT × [(1 + r)^n - (1 + g)^n] / (r - g)
Where: FV = future value, PMT = initial payment, r = discount rate, g = growth rate, n = periods
Present Value of Growing Annuity
PV = PMT × [1 - ((1 + g) / (1 + r))^n] / (r - g)
Where: PV = present value, PMT = initial payment, r = discount rate, g = growth rate, n = periods
Key Characteristics
| Feature | Fixed Annuity | Growing Annuity |
|---|---|---|
| Payment Amount | Constant | Increases each period |
| Inflation Protection | None | Built-in adjustment |
| Present Value | Higher | Lower (due to growth) |
| Future Value | Lower | Higher |
| Best For | Short-term needs | Long-term retirement |
Applications
- Retirement Income: Account for increasing expenses in retirement
- Inflation Protection: Maintain purchasing power over time
- Salary Projections: Calculate future earnings with raises
- Business Valuation: Project growing cash flows
- Estate Planning: Plan for increasing beneficiary needs
Growth Rate Considerations
- Inflation Rate: Typically 2-3% for conservative estimates
- Salary Increases: 3-5% for career progression
- Cost of Living: Local inflation rates
- Investment Returns: Expected portfolio growth
- Conservative Approach: Use lower growth rates for safety
Real-World Examples
Retirement Income Example:
Initial withdrawal: $40,000
Growth rate: 3% (inflation)
Time horizon: 25 years
Future value: $1,250,000+ in today's dollars
Career Salary Example:
Starting salary: $50,000
Annual increase: 4%
Career length: 30 years
Total earnings: $2.8 million
Important Notes
- Growth Assumption: Actual growth may vary from assumptions
- Tax Implications: Consider tax treatment of payments
- Market Risk: Investment returns are not guaranteed
- Inflation Uncertainty: Future inflation rates are unknown
- Planning Tool: Use for estimates, not precise predictions
Comparison with Fixed Annuities
While fixed annuities provide certainty, growing annuities offer inflation protection at the cost of lower initial payments. The choice depends on your risk tolerance and inflation expectations.
- Fixed Annuity: Predictable payments, no inflation protection
- Growing Annuity: Increasing payments, maintains purchasing power
- Hybrid Approach: Combine both for balanced strategy
Pro Tip: Growing annuities are particularly valuable for retirement planning because they account for the reality that your expenses will likely increase over time due to inflation. Use conservative growth rates to ensure your plan remains sustainable even if actual inflation is lower than expected.