How Do You Calculate The Interest Rate Of An Annuity?
An annuity is a form of retirement income in which you invest money (usually with an insurance company). During the “accumulation phase,” your investment builds up. When you retire, the insurance company pays you a fixed sum each year, usually in monthly payments. Each payment includes part of the principal plus interest. Strictly speaking, you don’t calculate the interest. The rate is set by the insurance company. However, you can calculate how much interest is required to produce the monthly income you want. This can be very useful when shopping for annuity plans. Determine the present value of the annuity or estimate the value in the future when you want payments to begin. To calculate the interest rate required to pay a specific amount for a period of time, decide how long you want the payouts to last (in years) and how large you want the annual payments to be. Find the PVOA (Present Value of Ordinary Annuity) factor. This is the ratio of the annual payment to the PVOA. Divide the
