Calculate Retirement Annuities for Retirees

Retirement annuities are savings plans designed to provide a guaranteed income during retirement. The retirement annuity may be funded over time (called a "savings annuity"), or it may only accept a one-time payment (called a "single premium annuity"). Regardless, the annuity earns interest. When trying to calculate the payment you receive from your retirement annuity, this is really only possible, long-term, with a fixed annuity. A variable annuity's returns are based on mutual fund investments that do not pay a fixed return and thus the calculations ultimately depend on the future earnings, which you won't know in advance.

Things You'll Need

• Annuity statement
• Annuity policy with rate sheet and illustration

Instructions

1. Get your most recent annuity statement, along with the annuity policy. The annuity policy contains the rate sheet for the annuity and the illustration provided by the insurance company. The rate sheet and illustration tell you how much the annuity pays.

2. Look at your most current annuity statement. Verify that the current annuity balance is the same as the illustrated annuity amount in your policy. For fixed annuities, the amount should be the same. For variable annuities, you should expect any illustration to be different from your actual account balance. If you are retired and ready to take an income from the variable annuity, you can calculate your retirement income from the annuity. If you're retired but not ready to take money from the annuity yet, then you can't perform an accurate calculation.

3. Multiply the total annuity account balance by an interest rate factor you expect to earn in your annuity. For a fixed annuity, this rate will be listed on the rate sheet and will be the interest rate that the annuity pays. For variable annuities, you must assume an interest factor. Many variable annuities have fixed interest mutual funds, you may want to consider using this fund when you start making withdrawals from your variable annuity.

   For example, if your total annuity account balance is $100,000 and your assumed or fixed interest factor is 5 percent, then you will withdraw $5,000 per year to supplement your retirement income.

References

• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994
• "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
• Internal Revenue Service: Publication 575: Pension and Annuity Income