![]() ![]() Indexed annuities are a type of fixed payment, a conservative safe haven for retirement dollars that is linked to a stock index that determines your interest rate.Of course, there is a possibility that these payments may increase substantially. Variable annuities are a little different because the issuer (an insurance company) guarantees you payments that may fluctuate over time.They are safe but pay out a very modest return, just slightly higher than a CD would yield. Fixed annuities pay you a guaranteed amount according to your account balance.There are three main varieties of annuities: It's a surefire way to guarantee that you don't outlive your assets and run out of money. You can choose to receive the payments for a specified number of years, or you can choose to receive payments until your death. The length of these payments can vary, as well. And you can choose between immediate payments that begin paying out right away or deferred payments that start the payouts at a later date.ĭeferred payments are by far the most popular type in the United States, and they are the best choice for an investor who doesn't need instant income from an annuity. You can contribute to these earnings either in a lump sum payment or a series of periodic payments. These payments can be customized for your specific needs. Bear in mind that funds like your 401(k) contributions cannot be withdrawn without penalty until you reach age 59. The purpose of these earnings is to give you a steady flow of income during retirement. You pay the insurance company a lump sum of money or a series of payments, and in return the insurance company issues you regular payments beginning now or at some point down the road. Since it is a form of insurance, these earnings are a contract between you and an insurance company. What is an Annuity?Īn annuity is a fixed sum of money paid to someone each year, usually for the rest of their life. Why is it more valuable? Well, time is money, and you could invest the $5,000 lump sum and parlay it into additional revenue.Ĭonversely, if you could get a return on your money of 6% by investing it, you can see by using our convenient Present Value Calculator that $4,212 received today would have the same value as receiving $1,000 a year for 5 years. The idea behind "present value" is that money you receive today is worth more than the same amount of money if you were to receive it in the future.įor example, if you receive $5,000 now in one lump sum, it has more value than receiving $1,000 a year for the next 5 years. How to Figure Out the Present Value of a Future Sum of Money The following table lists currently available rates for savings accounts, money market accounts and CDs. Is your bank offering competitive rates which beat inflation and taxes? If not, you may be able to earn a better rate & make your money work harder by shopping around. Calculator Rates Future Value & Discount Rate ![]()
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