Annuities can help you plan for your retirement by providing a guaranteed source of income for you and your family when you reach your golden years. They aren’t the simplest of investments, though, and sometimes it can be difficult to know exactly how much your annuity is worth. An annuity table can help with that by allowing you to easily calculate the present value of your annuity. This information allows you to make informed decisions about what steps to take to plan for your retirement. If you need assistance with annuities or retirement planning more generally, find a financial advisor to work with using SmartAsset’s free financial advisor matching service.
What Is an Annuity Table?
An annuity table helps you determine the present value of an annuity at a given time. The table considers how much money you have put into the annuity and how long it has been invested.
Of course, for this information to be useful, you’ll need to know what the present value of an annuity is and how to interpret it. The present value of an annuity is the cash value of all of your future annuity payments. It takes into account the rate of return and the total number of payments you have remaining. If you don’t have an annuity table available, there is a formula that you can use to calculate the present value of an annuity:
P = PMT x ((1 (1 / (1 + r) ^ n)) / r)
The variables are defined as follows:
P = the present value of the annuity
PMT = the amount of each payment you get from the annuity in dollars
R = the interest (also called the discount rate)
N = the number of payments you still have to receive
With an annuity table, you won’t need to do the calculation. You can get the information you need simply from reading the chart.
An annuity table typically has the number of payments on the yaxis and the discount rate on the xaxis. Find both of them for your annuity on the table, and then find the cell where they intersect. Multiply the number in that cell by the amount of money you get each period. That number is the present value of your annuity.
Here is the annuity table for an ordinary annuity:
Annuity Table for Ordinary Annuities n 1% 2% 3% 4% 5% 6% 8% 10% 12% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 2 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 3 2.941 2.884 2.829 2.775 2.723 2.673 2.577 2.487 2.402 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 5 4.853 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 6 5.795 5.601 5.417 5.417 5.076 4.917 4.623 4.355 4.111 7 6.728 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564 8 7.652 7.325 7.020 6.733 6.463 6.210 6.210 6.210 4.968 9 8.566 8.162 7.786 7.786 7.108 6.802 6.247 5.759 5.328 10 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 11 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 13 12.134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 16 14.718 13.578 12.561 11.652 10.838 10.106 8.851 7.824 6.974 17 15.562 14.292 13.166 12.166 11.274 10.477 9.122 8.022 7.120 18 16.398 14.992 13.754 12.659 11.690 10.828 9.372 8.201 7.250 19 17.226 15.678 14.324 13.134 12.085 11.158 9.604 8.365 7.366 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 8.514 21 18.857 17.011 15.415 14.029 12.821 11.764 10.017 8.649 7.562 22 19.660 17.658 15.937 14.451 13.163 12.042 10.201 8.772 7.645 23 20.456 18.292 16.444 14.857 13.489 12.303 10.371 8.883 7.718 24 21.243 18.914 16.936 15.247 13.799 12.550 10.529 8.985 7.784 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 26 22.795 20.121 17.877 15.983 14.375 13.003 10.810 9.161 7.896 27 23.560 20.707 18.327 16.330 14.643 13.211 10.935 9.237 7.943 28 24.316 21.281 18.764 16.663 14.898 13.406 11.051 9.307 7.984 29 25.066 21.844 19.188 16.984 15.141 13.591 11.158 9.370 8.022 30 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055Here’s an example using the table above: Let’s say you have an annuity that pays you $1,000 per month at a 6% discount rate and you have eight payments remaining. Find eight periods and 6% on the chart. The cell where they intersect reads 6.210. Multiply that by $1,000, and you get a present value of $6,210.
Different types of annuities (variable annuities, for instance) will have different tables. Talk to your advisor or annuity company to make sure you are using the correct table.
How an Annuity Table Can Help YouAs discussed above, an annuity table helps you determine the present value of an annuity. Once you’ve found that number, you can make more informed investment decisions to build the best possible retirement portfolio for you.
Lottery winners, for instance, often have to make a decision about whether to take a lump sum payment or take their money in the form of an annuity. Using the annuity table, you can see what the present value of the annuity is. If it is less than the lump sum offered, taking the lump sum and investing it is probably the better option.
For more common use, you can use the annuity table to simply know how much your annuity is worth so that you have a clearer picture of your portfolio’s value.
The Bottom LineUsing basic information about your annuity, an annuity table can help you find out the present value of your annuity. Once you have this information you can make more informed decisions about your finances because you’ll know exactly how much your annuity is worth in current dollars, given an assumed discount rate. Make sure you’re using the right table for the type of annuity you have.
Retirement TipsPhoto credit: iStock.com/Jirapong Manustrong, iStock.com/BrianAJackson, iStock.com/erikapellini
The post What Is an Annuity Table? appeared first on SmartAsset Blog.
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