When you decide to invest for your retirement in a fixed annuity, you will want to calculate several figures for you to find out if the venture is feasible. For a start, this annuity is just like a life insurance policy. However, it involves depositing some money which earns some tax-free interest and then you are paid the resulting amount in periodic amounts. Therefore, there are two different durations within this investment.
The first duration is that which the person buying this policy will be required to pay his investment amount. This is possible as a single payment in bulk or as a number of premium payments. Once this person retires, the second duration of receiving payments starts. These payments usually happen every month but there are instances when you can receive them quarterly or annually. Some of the values that you would like to calculate are these periodic payments. Many people might wonder where you will get calculators for annuity.
Well, you can easily find a fixed annuity calculator from various websites. Some will belong to insurance firms, whereas there are those that are from independent vendors. For instance, a calculator could allow you to find the value of one parameter so long as you have three others for your fixed annuity. All these parameters will be the total amount invested, your annual payment, years invested and interest rate. However, different fixed annuity calculators will calculate different parameters depending on their designs. Listed below are some of these parameters.
1. Starting balance – Whenever you decide to invest in any venture, you will have a planned amount of money that you will be willing to put into such a scheme. Most calculators refer to this amount as starting balance.
2. Annual contribution – During the accumulation period when you are supposed to pay your investment money to the insuring firm, you will have certain premiums amount for every year. This is the annual contribution.
3. Current age – This is the age of the annuitant when he signs his contract and it is necessary since the calculator is able to know when the distribution phase will start.
4. Withdrawal age – This is the age of the annuitant at the time he will start receiving his periodic payments.
5. Current tax rate – Every investor belongs to a certain tax bracket. This bracket is referred to as current tax rate, which will be necessary to determine if there will be any tax for the invested amount.
6. Retirement tax rate – This is the tax category, which the annuitant will belong to when he or she retires. It will determine how much he will have to pay for the earned interests.
7. Surrender charges – You need to understand that most firms allow annuitants to withdraw only 10% (per annum) of their investment during the accumulation period. However, if you decide to make large withdrawals, you will be subjected to some penalty amount by the financial institution. This penalty amount is the surrender charges. These charges are also imposed when you end a contract before its maturity time.
8. Initial interest rate – When you invest in a fixed annuity, there is the minimum rate of interest that the insurer will assure you to get irrespective of market changes. This value is called the initial interest rate.
9. Years of guaranteed initial rate – when you sign your annuity contract, there will be the number of years during which the rate given for the first year will remain constant. These years are referred to by this term.
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