About the Annuity Calculator

An annuity is a financial product, typically offered by insurance companies, designed to provide a steady stream of income, usually during retirement. This calculator focuses on the **accumulation phase**, where you are contributing money and allowing it to grow. It helps you project the future value of your annuity based on your initial investment, ongoing contributions, and expected growth rate.

Key Terms Explained

• Starting Principal: The initial amount of money you use to start the annuity.
• Additions: Regular contributions you make to the annuity, either monthly or annually, to help it grow.
• Annual Growth Rate: The expected annual rate of return on your investment. For fixed annuities, this is a guaranteed rate. For variable annuities, it's an estimate based on market performance.
• Annuity Due vs. Ordinary Annuity: This determines when your contributions are added. For an annuity due, contributions are made at the beginning of each period, allowing them slightly more time to earn interest. For an ordinary annuity, they are made at the end.

Frequently Asked Questions (FAQ)

What is an annuity?

An annuity is a contract between you and an insurance company. In the accumulation phase (which this calculator models), you make payments to the insurer. In the payout phase, the insurer makes regular payments to you for a specified period or for the rest of your life. They are often used to create a reliable income stream for retirement.

What is the difference between a fixed and variable annuity?

A **fixed annuity** offers a guaranteed, fixed interest rate, making it a low-risk option with predictable growth. A **variable annuity** allows you to invest your contributions in sub-accounts (similar to mutual funds), offering the potential for higher returns but also carrying market risk.

Are annuities a good investment?

Annuities can be a good choice for conservative investors seeking a guaranteed income stream in retirement and tax-deferred growth. However, they can come with high fees and surrender charges if you withdraw your money early. It's important to understand the specific terms and costs before investing.