Annuity Calculator

Thank you for taking time to visit Annuity Digest.  The information on this page is intended to help you better understand the annuity calculator results that were sent to you in email.

• A brief explanation of the results you received in the email.
• An explanation of why this information is important.
• An explanation of what you can do with this information.
• Some additional things for you to consider.

Explanation of Results:

The dollar figure you received in your email is the amount you would receive each year from a single premium immediate annuity (SPIA). The amount shown is based on the information you provided and is an annualized figure that would start at your expected retirement date.

A single premium immediate annuity is sometimes referred to as an immediate annuity or a life annuity.  This type of annuity provides guaranteed payments to you (or you and a spouse if you are married) as long as you live.  The amount that you use to purchase the annuity is transferred to the insurance company in a single, lump-sum payment.  

A single premium immediate annuity is relatively inexpensive (in terms of fees) when compared to other annuity types, and although this annuity type is straightforward, it is powerful and preferred by many financial advisors and economists.

Why Is this Important?

A single premium immediate annuity is an annuity in its simplest form--it converts a sum of money into a stream of payments that are guaranteed for life.

Most people have no idea how much their nest egg would produce in annuity payments, and many are surprised by how small the payments are. This information can be useful in the retirement planning process.

The most important aspects of the SPIA are:

1. Guaranteed Income: The payments are guaranteed.
2. Guaranteed for Life: The payments are guarantee to last your entire life.
3. Mortality Credit: The mortality yield offered by the annuity is powerful and unmatched by any other financial product.
4. Sustainable Retirement Income: Having guaranteed sources of income from sources such as annuities, pension plans and Social Security can increase the likelihood that your desired retirement spending lasts throughout your lifetime.

You need stable, guaranteed sources of income in retirement.  You do not want to be funding your retirement income needs entirely with risky or volatile assets.  You want a portion of your retirement income to be stable, contractually guaranteed and pension-like.  You also want to mitigate longevity risk by having some income sources that are guaranteed to last as long as you live.  The single premium immediate annuity addresses all of these needs.

What Can You Do with this Information?

There are several things you can consider doing with this information:

1. Increase Your Savings: The amount of your retirement savings or “nest egg” has a direct impact on the amount of retirement income you are able to generate over time.  All things being equal, more savings means more income--regardless of whether that income is from an annuity, a bond portfolio or systematic withdrawals.
2. Assess Your Desired Retirement Spending Levels: Was the amount of income that your savings can generate through an annuity surprising to you?  You may want to think about the annuity payment as roughly equivalent to the level of retirement spending that would be prudent regardless of what source generates the income.  Click here to understand how this works.
3. Assess Your Asset Allocation: Asset allocation or how your nest egg is divided between stocks and bonds can affect your level of sustainable retirement spending.  Click here to understand how this works.
4. Assess Your Product Allocation: The amount of retirement income that comes from guaranteed sources such as annuities can affect the sustainability of your desired retirement income.  Click here to understand how this works.
5. Assess Financial Legacy: Financial legacy refers to the amount you wish to the amount of money you wish to leave for your heirs.  In other words, financial legacy refers to the amount you want to leave as an inheritance.  There is a basic trade-off between retirement sustainability and financial legacy: the higher your desired financial legacy the lower your retirement sustainability.  Click here to understand more about this trade-off.
6. Shop for an Annuity: The annuity calculation provided to you is an estimate--not a formal quote.  Actual single premium annuity prices may differ according to factors specific to each insurance company.  That said, you can use the annuity calculation is a reference point if you choose to shop for an annuity in the marketplace.
7. Talk to a Financial Advisor: Armed with knowledge, you are in a better position to have an informed conversation with a financial advisor.  Click here to connect with a financial advisor.

Some Additional Things for You to Consider:

1. Connect with a Financial Advisor: The tools that generated the results you received in email can be used to generate many different “what-if” scenarios.  You are welcome to further explore these tools through a conversation with a financial advisor.  Click here to connect with a financial advisor. 
2.  Credit Risk: Single premium annuity payments are subject to the claims paying ability of the insurance company that offers the annuity.  Only buy an annuity from highly rated insurance companies, think about spreading larger purchases over time and among different insurance companies.  
3. Inflation Risk: Unless payments are inflation adjusted, annuity payments are fixed and will not increase over time to keep pace with inflation.  This is a real risk if inflation rises in the future because the annuity payments your receive will be worth less.  Shop around and ask about inflation protected annuities.
4. Fees and Expenses: Single premium immediate annuities are some of the least expensive annuities.  That said, some are more expensive than others.  Ask your financial advisor about all fees and expenses.
5. Interest Rates and Laddering: One way to think about the risk of rising inflation and interest rates is to spread any annuity purchases over time (for example, over 10 years).  This is referred to as laddering and the benefit is that you will be spreading purchases over periods that presumably have different interest rate levels associated with them.  This reduces the risk that you would put “all your eggs in one basket” buy making a large SPIA purchase when interest rates are low.