Know How To Calculate Annuity Value Online In India
Updated On Dec 01, 2021
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What is annuity? An annuity is like a long-term investment deal between an insurance company and an individual in which the respective individual makes periodic disbursements or income. The respective individual can make the payments either immediately or in the future. The respective individual also has the option for making payments in series or in a lump amount.
Financial goals of an individual are quantifiable and defined milestones that, when achieved, put the respective individual closer to their desired future. Setting proper financial goals requires a high level of financial knowledge on the individual's behalf. As we know, an annuity is a sort of insurance contract that aims to pay out invested assets as a fixed income stream in the future. Therefore, this ensures a future source of income for the respective individual for a set period of time or for the rest of their lives. To find out more on annuity, read on.
Types Of Annuities
Following are some types of annuities that are available to an individual -
Lump-Sum is one of the most popular forms of annuities available. This annuity plan offers the option of a lump-sum payout, as the name implies. The lump-sum annuity option is usually voluntary, and it is only accessible for a limited time. However, in most situations, subscribers will not be able to withdraw the whole annuity payment in one single sum. For example, under the NPS, it is required to utilise 40% of the accrued money to purchase an annuity.
In an immediate annuity plan, an individual pays a fixed lump-sum premium and receives payment immediately after the lump-sum amount is paid off.
In contrast to an immediate annuity, a deferred annuity plan requires an individual to pay the premium for a defined period of time, referred to as the accumulation phase of the scheme. After the accumulation phase is completed, the collected funds are used to purchase an annuity, which is given to the respective individual on a regular basis after retirement.
In fixed annuity, the annuity payout remains consistent during the duration of the contract. This form of annuity works in the same way as a fixed monthly pension, and it's excellent for people who desire a steady stream of income. The payouts are set with this annuity option, but the likelihood of financial gain is quite minimal.
The retirement fund or other appropriate management body purchases annuities based on current market circumstances. However, because of the market's volatility, a specialist calculator is needed to calculate the annuity. Individuals may use an annuity calculator to determine how much an annuity will cost them once they retire. Individuals may estimate how much investment they need to make throughout the accumulation phase with the aid of an annuity calculator in order to attain the desired accumulated amount at the conclusion of the investment duration.
Following are some of the factors that an individual should consider while calculating their annuity -
Information About Income
This is one of the most important factors to consider when calculating annuities. An individual’s saving goals for the present and future should be realistic. Thus, it's critical to include information regarding their income source, such as yearly income, income growth rate, and so on. This allows individuals to forecast how much yearly income growth they may expect in the next few years and how much they can invest to build a financial buffer for the future.
This is yet another significant factor to consider when calculating an annuity. Individuals should divide their funds into several categories. For example, retirement savings should be done individually and not as part of a child’s education, marriage, or property purchase. It's also important to consider how these savings are made: FDs, stocks/bonds, mutual funds, RDs, and so on. The total risk vs. return perspective is the most crucial issue to consider here. An individual may assess the amount needed to build a robust retirement fund by considering their respective risk appetite and expected returns.
The ability to save is determined not just by an individual's earnings, but also by their present expenditures. It is logical that if an individual's costs are low, his or her savings would be higher, and vice versa. Furthermore, while using the annuity calculator, individuals should also account for potential inflationary increases in expenditures.
In a nutshell, annuities are the ideal type of savings if an individual wants safety, stability, and inflation-beating returns, or if they want a steady income stream once they retire.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.