Future Value of an Annuity
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Updated date : 23 June 2020
Future Value of an Annuity
Retirement planning is an aspect, which is generally not taken seriously in our country. Often we do not realize but the truth is that retirement planning is an important aspect when it comes to financial planning and in any case should not be ignored if you wish to enjoy your golden years with no financial setbacks.
Therefore, if you are looking forward to having hassle-free golden years of life, investing in an annuity plan is the best thing to do. An annuity plan is a type of life insurance, which provides regular income during the phase of retirement.
The time you decide to invest in the best annuity plan, most likely you would also want to know the future value of an annuity or in simple words; you would want to know what would be the value of the annuity payments at the certain prospective times.
Let us understand that the future value of an annuity.
What Do You Mean By the Future of an Annuity?
When it comes to the future value of an annuity it essentially implies the complete value of annuity payments at a certain time in subsequent times. This is helpful wherein one can figure out the future payments that will be worth believing that rate of return and likewise the periodic payments will remain unchanged.
The future value of an annuity calculation depicts the complete value of a collection of payments within a certain date in the coming times on the premise of a selective rate of return. It is indeed different from the way the present value of an annuity is calculated and therefore it is to be clearly understood that the present value of an annuity calculation gives the current value for the future annuity payments and is different from the future value of an annuity calculation.
The idea is simple, higher is the discount rate, and greater would be the annuity’s future value.
Read Also: What is an Annuity
Why is it Important to Understand the Future Value of an Annuity?
It is important to understand the future value of an annuity as it is helpful when planning for the retirement or even when you are planning any other aspect wherein the finances are required.
Knowing the future value of an annuity will give you a clear understanding and you can accordingly make plans on the premise of the expected income.
Therefore, it is indeed important to understand and now, let us quickly take you through the future value of an annuity formula.
Understanding the Future Value of an Annuity Formula
Before we determine the future value of an annuity formula, it is important to understand the representation of the variables as well.
- P: Future Value of an Annuity
- PMT: Value of Every Annuity Payment
- r: Interest Rate
- n: Number of periods on Which Payments Will be Made
Formula to Determine the Future Value of An Annuity: P = PMT x (((1 + r) ^ n – 1) / r)
How to Go About With the Future Value of an Annuity Formula?
Simply follow the key rules of mathematics and with the above mentioned future value of an annuity formula plug the relevant numbers accordingly.
Primarily, complete the calculations inside of the brackets, and then step towards solving the other exponents and likewise, move towards solving the remaining parts of the formula.
Moreover, you can also use the future value of annuity calculator and compute the values.
What is the Future Value of Annuity Calculator?
The future value of annuity calculator is a tool, which helps you to compute the value of the series of equivalent cash flow at a subsequent date.
In simple words, with the future value of annuity calculator, you can easily have an estimate of the future value of the series of payments done periodically. The annuity calculator could be used to figure out the annuity payment, annuity period and the interest rates provided the values are provided.
The use of a future value annuity calculator lets you calculate the subsequent value of an annuity in regards to an ordinary annuity or even an annuity due.
Calculating the Future of an Annuity
An annuity helps in creating a guaranteed flow of income after your retirement. It will be a source that you can easily rely upon.
The future value of an annuity calculation is important as it will show you the payments that you will be receiving at a certain date subsequently and know the worth of it on the premise of a rate of return that will be consistent.
The future value of an annuity will help you to make your financial decisions and accordingly plan your objectives as finances play a major role throughout our life. Once you have the estimation with you, the financial planning can be done more efficiently and in a hassle-free manner and enjoy the most golden period of your life.
The future value of an annuity will help you to make informed decisions and set your financial life objectively.
Helpful Resources: Types of Annuity
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