Annuity Calculator

Who Is an Annuity Best For?

Annuities are generally best for people who want a guaranteed fixed income in retirement, but many people use annuities to complement other retirement planning strategies, including savings and investments. An annuity can be a particularly good option for seniors, as it allows you to start receiving payments quickly. While there are different types of annuities to fit various needs and budgets, here are some of the people that annuities are best for:

• Working adults who have maxed out their 401(k) and IRA contributions and want to put more funds toward retirement
• Seniors who can afford to put down a lump sum in advance for reduced risk later on
• Older adults who want to control their retirement spending
• Anyone who prefers simple, fixed, predictable payments during retirement

Types of Income Annuities

Since annuities are contracts made with insurance carriers, there are often multiple ways to customize them. Here are some of the most common types of annuities to consider.

Fixed vs. Variable

Traditional fixed annuities pay a guaranteed amount beginning on a specified date. The return rate usually depends on market interest rates at the time the annuity contract was signed. The advantage of a fixed annuity is that it guarantees the return on principal, which is good for seniors looking for a reliable income in retirement without the risks inherent to many other investment vehicles.

Variable annuities do not pay out a fixed amount. Instead, all payment amounts are directly linked to the performance of invested funds. Variable annuity funds are typically invested in low-risk mutual funds and money market accounts, though the annuity holder is responsible for managing the investments. Variable annuities do not guarantee a return on principal.

Immediate vs. Deferred

Immediate annuities pay out a part of the initial premium quickly — anywhere from one month to one year after the contract starts. This is commonly used by older adults who want a steady retirement income without the pressure of managing large assets. Since the payout happens very quickly, there is no accumulation period and the funds earn little to no interest beyond the principal amount.

Deferred annuities allow the annuity holder to pay a lump sum or make premium payments over time. These funds are tax-deferred, so they can grow tax-free until the annuity issuer begins paying back the principal (plus earned interest) in installments. Deferred annuity holders incur a 10% penalty fee if the funds are distributed early (before 59 ½ years of age).

How to Use Our Annuity Calculator

Our free annuity calculator lets you see how much income you could receive based on your contributions, how and when you receive payments, and the nature of the accumulation period (i.e. taxation and growth). Below is the information you’ll need on hand to use the calculator:

Contributions 

• Your age
• Initial premium
• Annual contributions (if applicable)
• Planned increase to annual contributions (if applicable)

Distributions

• Planned distribution age
• Years of distribution
• Desired annual income during distribution
• Increase to distributions (accounting for inflation)
• Income tax rate during distribution

Accumulation

• Estimated return on taxable and tax-deferred investment
• Income tax rate during accumulation
• Qualified annuity status

While most of the factors listed above are pretty straightforward, many people may not know if they have a qualified or non-qualified annuity. A qualified annuity is funded with post-tax dollars, while a non-qualified annuity is funded with pre-tax dollars. Even if you have a qualified annuity, you will still have to pay taxes on any earnings, dividends, or interest accrued.