When calculating an annuity rate many people end up giving up because they find it too complicated, but this doesn't have to be the case if you fully understand what information is needed and how the calculation works.
All annuity rates are calculated using the same formula and information which includes: the rate of return (as only safe investments are used this will generally be low), the annuity term (based on the estimated life span of a pensioner, in which health, age and gender will have an effect), the initial amount to be invested, whether payments are going to be steady or increase and also the payment frequency which must take into account when payments are made.
The majority of this information should already be known to the applicant and so plugging these figures into the equation is very easy. The initial size of the investment should be an obvious one and the preferences of how the annuity payments should be made should be decided before making the calculation. The rate of return is based on a government gilt which is considered one of the safest investments around but provides a low return.
The remaining part of the equation is the annuity term which will be an estimated figure based on your health, age, gender and overall well being. It is very difficult to work out how long someone will live but averages generally give a good indication. Understanding this information is very important when calculating an annuity, so being honest and finding a good average will go a long way.
Knowing the final piece of the puzzle allows you to calculate what your potential annuity rate should be and you will also be able to see how each component affects the outcome. Recently the average life expectancy of an individual has risen significantly and this is why many annuity rates have fallen.
All annuity rates are calculated using the same formula and information which includes: the rate of return (as only safe investments are used this will generally be low), the annuity term (based on the estimated life span of a pensioner, in which health, age and gender will have an effect), the initial amount to be invested, whether payments are going to be steady or increase and also the payment frequency which must take into account when payments are made.
The majority of this information should already be known to the applicant and so plugging these figures into the equation is very easy. The initial size of the investment should be an obvious one and the preferences of how the annuity payments should be made should be decided before making the calculation. The rate of return is based on a government gilt which is considered one of the safest investments around but provides a low return.
The remaining part of the equation is the annuity term which will be an estimated figure based on your health, age, gender and overall well being. It is very difficult to work out how long someone will live but averages generally give a good indication. Understanding this information is very important when calculating an annuity, so being honest and finding a good average will go a long way.
Knowing the final piece of the puzzle allows you to calculate what your potential annuity rate should be and you will also be able to see how each component affects the outcome. Recently the average life expectancy of an individual has risen significantly and this is why many annuity rates have fallen.
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Find out more about a pension annuity and the benefits that they bring to pensioners.
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