Annuity Payout Calculator

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What is an annuity payout?

The annuity payout is defined as a single premium immediate annuity that can provide a guaranteed income. This annuity benefits are paid to the investor on monthly, quarterly, semi-annually or annually basis over the lifetime of the investor or guaranteed period. With these payouts, the investor purchases the annuity with a single deposit and receives monthly payments immediately. The annuity payout assures the investor will receive income from this annuity as long as the investor lives. It is based on the guaranteed interest rate and provides favorable tax treatment. The investor has the rights to decide how often and how long the investor can receive income from this annuity. The choices offered by an annuity payout provide flexibility in planning secure and long-term investment.

Phases of an annuity:

Accumulation phase:

The accumulation phase is the first phase of the annuity. This phase starts with the investment of money into the annuity until the payment of the first premium. There are several ways to accomplish the payments options. The most common method of making payments is usually by check or bank transfers. The fund’s transfer is made in different methods lump sum or a series of payments.

Annuitization phase:

The annuitization phase is the phase that starts after making the first payment of premium. It acts as separations phase between the accumulation and payout phase. It is the point at which the company receives premium payments from the investors in preparation to pay back the accumulated assets as fixed payments to the investors.

Payout phase:

The payout phase is the final phase of the annuity and it is also known as distribution phase. In this phase, the insurance company issues the payments to the investor. The time period of this phase may vary based on different factors like the payout amount and total payments made during the accumulation phase. The payments can be divided into the smaller sum of amount and distributed over a specified period of time like monthly, quarterly, half-yearly or annually. Once the scheme is applied it cannot be changed.

Payout options:

They are different options for annuity payouts and not all companies and annuities offer every payments option.

  • Lump sum: It allows the investors to withdraw the total amount of money in a single withdrawal. It is useful for the investors who want the money immediately. The penalty is not charged on the annuity if withdrawn after the age of 59 ½. The income tax is applied after the year of withdrawal and it makes financially undesirable from a tax minimization standpoint.
  • Fixed length: The payout option of fixed length is the payout of the annuity to the investor over a fixed period of time. The company assures that the payments are last for the specified period of time.
  • Fixed payment amount: This payout option allows the investor to select a fixed amount of payments that the investor wants to receive over the time. This payment option is last until the annuity balance is depleted.
  • Life only: In this payout option, the insurance company issues payments to the investor as long as the investor lives. The determined life expectancy is used to estimate the payout amount. The longer the lifespan, the smaller the payout amount. It has some drawbacks like payment amount can be selected if the investor dies early the remaining annuity is lost.
  • Joint and survivor: This payout option ensures that the payments provided by an annuity will be continued for the spouse even after the annuitant is dead. The payment amount is estimated based on the life expectancy of the annuitant and their spouse. The payment amount is less than the life only payments. The payments will be stopped after the death of the second annuitant. It is also known as joint life payout. It can be made to the dependent child of the annuitant.
  • Life with the certain period: It is a combination of fixed length and life only payout options. The income for life is assured and also allows the investor to select the specified period of time where the annuity pays a designated beneficiary. If the annuitant dies before or after the fixed period, no payments are made to the beneficiary.

The components included in the annuity payout calculator:

  • Starting principal: The principal amount invested.
  • Interest/return rate: The interest/return rate on the investment.
  • Inflation rate: The inflation rate of the amount invested.
  • Year to payout: The time period of the payouts.
  • Payout frequency: The payout options like monthly, quarterly etc.

This calculator helps out to estimate the annuity payout amount for the fixed period of time or the length of the annuity if the payout amount is fixed.