Annuity is an insurance contract in the form of an investment, and provides a source of income in the form of periodic payments during the agreed period for the annuity recipient (anuitant) or heir, starting now or sometime in the future. This investment can be a great addition to a retirement portfolio, but it can be quite confusing. Understand how annuities work and the income they are likely to receive to help plan for the future and adjust your other investments. The steps below will show you how to calculate annuity payments and accurately forecast future income.
Step
Part 1 of 3: Determining the Type of Annuity Owned
Step 1. Determine the type of your annuity payment
Check your paperwork or contact the annuity issuing company to see if your payment is immediate or deferred. If it is immediate, the annuity payments will start immediately after the initial investment. If you have a deferred annuity, the investment payments will accumulate at the regular interest rate.
Step 2. Determine the investment type of your annuity
your investment may be of fixed or variable type. You can also check the type of investment by viewing the documents or contacting the annuity issuing company. Fixed annuities have guaranteed interest rates, and therefore payments are guaranteed. Variable annuities are highly dependent on the performance of the underlying investment, and therefore the amount of the payout differs each month. You choose an investment type when you buy an annuity. This annuity is an object of PPh 21.
Step 3. Know your liquidity options
Check the annuity contract or contact the annuity issuing company for your annuity liquidity options. You may incur a penalty if you withdraw funds early. Some of these penalty annuities allow partial withdrawals of funds without penalty. There are also annuities that do not provide a penalty, such as a no-surrender or level load annuity.
Part 2 of 3: Determining Your Annuity Details
Step 1. Know your annuity payment options
The most popular payment option is paying the full amount of the annuity over an agreed period, with all remaining balances after your death passed to your heirs. Another option is payment until death in the absence of a beneficiary, or payment for a certain period including payments to the testator after the death of an annuity for a certain period of time. There is also an annuity option that provides payments to the testator for the duration of his life beyond you.
Step 2. Find your principal balance
Your principal balance is the amount paid to purchase an annuity either in initial payments or in monthly installments (for example from salary). If payments are made regularly, you'll need to ask for the current balance amount to calculate your payment.
You will also receive an annuity statement report. Your balance should be included in this report
Step 3. Find the interest rate
There may be a guaranteed minimum interest rate that you earn when you buy an annuity. This means that your interest rate will never fall below it. Otherwise, the fixed interest rate must be included in the documents you received when you purchased the annuity, or if the annuity is variable, you can find out the guaranteed interest rate by contacting the annuity issuer or checking your account online.
The annuity statement should also include your interest rate
Part 3 of 3: Calculating Your Payment
Step 1. Calculate the payment amount based on your particular situation
For example, assume the price of an annuity of $65,000,000 with an interest rate of 4% that will pay out a fixed amount annually for the next 25 years. Annuity Value Formula = Payment Amount x Annuity Present Value Factor (Present Value of an Annuity or PVOA). The PVOA table is available here.
- The PVOA factor for the above scenario is 15, 62208. Therefore, 65,000,000,000 = Annual payment x 15, 62208. As a result, the total annual payment is Rp. 32,005,980.
- You can also calculate the payment amount using the “PMT” function in Excel. The syntax is "=PMT(Interest Rate, Total Period, Present Value, Future Value)." Based on the example above, type "=PMT(0, 04, 25, 6500000000, 0)" into the cell and press " Enter." There can be no spaces in this function. The result shown is IDR 32,005,980.
Step 2. Adjust the calculation if the annuity will not be paid in several years
Find the future value of the current principal balance using the Future Value table, the interest rate that will accrue on your annuity between now until payments begin to be made, and the number of years until you start withdrawing payments. For example, assume your $65,000 will receive 2% annual interest until it starts paying off for 20 years. Multiply Rp. 65,000,000,000 by 1,48595 (known from the Future Value table) and get 742,975. Future values are generated using a mathematical equation. You can see the table here.
- Find future values using FV function in Excel. The syntax is "=FV(Interest Rate, Total Period, Additional Payments, Present Value)." Enter "0" for additional payment variables.
- Replace the future value with the annuity balance and recalculate the payment using the formula "Annuity Value = Payment Amount x PVOA factor". Based on these variables, your annual payment is IDR 47,559,290,000.
