Immediate Annuity Calculator

An immediate annuity calculator can help you figure out how much money you can expect to be paid each month, or the cumulative amount for each year, based on several factors.

Those factors are:

The last factor is tricky because you need to estimate how long you will live. You don't want to run out before you die, but on the other hand, you don't want to be too frugal and then have too much left over after you die.

Another way you to use the immediate annuity calculator is to have a fixed amount distributed each month and use the calculator to tell you how long your money will last.

An immediate annuity is an investment where you contribute a lump sum of money to a managed account and it is distributed to you throughout the remainder of your life.

Most often insurance companies manage your annuity, although you have some say as to the kinds of investments you prefer.

The annuity is immediate because distributions are paid out right away, although you can choose an annuity that delays payments for up to a year.

Once you die the annuity payments stop, regardless of how much money is left. Our immediate annuity calculator is great to determine what your payments will be.

You can expect to get more from an annuity than just keeping that money in the bank. The rate of return varies, so the answer to this question is difficult, but it's based on today's rate.

It also depends on how much you're able to invest.

The biggest factor that plays into how much you can get is your age. The older you are, the more money you'll get each month. That's because the money doesn't have to last as long.

If you are getting an annuity with a spouse, then you need to consider who will live the longest and calculate for that longer length of time.

Example

If you invest $100,000 in an immediate annuity with a rate of return of 5%, you can expect $1055.24 a month for the rest of your life, if you only expect to live another 10 years.

An accumulation period is the time when your investment is collecting interest, or accumulating value, and you're not withdrawing payments. With an immediate annuity, there is no accumulation period, because the payouts are immediate.

However, this doesn't mean that your money doesn't grow. There's just not an initial build up. There is still an annual rate of return. But since your payments are fixed, then that rate of return is based on today's market.

The answer to this depends on where the initial money came from that was investing into an immediate annuity.

Pre-Tax Funds

If you used funds from a pre-tax investment, such as rolling over a 401(k) from a previous employer, then you will need to pay regular income taxes on everything paid to you, from both the premium and the growth. This is because taxes were never paid on this income.

After Tax Funds

If you used money from a saving account or another investment fund that was not a pre-tax investment, then you only need to pay taxes on the earnings of your investment.

Each monthly payment includes some portion that was from your principal investment and a smaller amount earned from the rate of return, less fees. You only need to pay taxes on the latter amount.

The taxes would be at your income tax rate. For some, this is not a bad thing, because, after retirement, we're not earning an income beyond our investment payouts. So our income tax bracket is often low.

It's always a good idea to diversify your investments. Diversification should come in the form of both pre-tax and post-tax investments, short and long-term payouts, and a range of risk factors. Investments subject to required minimum distributions and others that are not is another way to diversify.

An immediate annuity shouldn't be your only form of retirement funding. But if you have money that is not accumulating growth, putting it into an annuity is a better choice than keeping it in savings. And it's protected from creditors.

Disadvantages Of An Immediate Annuity

There are some downsides to annuities, for instance, if you need the money sooner than later. You relinquish control of that money, so it's no longer liquid. If an emergency came up, there would be a penalty for withdrawing all the money.

Crunch Some Numbers

Now that you understand the ins and outs of immediate annuity, use our immediate annuity calculator to play around with the numbers. This way you can figure out how much you can expect to receive from your investment.

When budgeting your finances after retirement, you should take into consideration necessary and expected expenses, what your total retirement funds will look like and how much you'll be getting from Social Security. This way you can plan for your retirement years, and rest assured that you can live life in a comfortable way.