# Deferred Annuity Calculator

The annuity calculator below can help estimate balances and cumulative fees of deferred annuities if held to maturity and converted to income through annuitization. A fixed annuity, indexed annuity, and variable annuity can all be deferred but each will have different expected returns and expense rates over time.

How an investment might grow?
 Calculate

Based on the inputs above, the approximate returns and expenses accumulated during the deferred growth period would be:

Growth Period
Gross Total Gains (\$)How much would the principal grow without fees?
Total Expense Paid (During Accumulation)How much fee expense is paid during the growth period?
Annual Net Return (%)What is the equivalent APY during growth?
Total Net Gains (\$)How much profit would accumulate after fees are paid?
Ending ValueWhat is the ending value of your principal (plus growth, minus fees)?

Starting with the estimated ending value from the growth period, the estimated income available over the stated retirement period and the approximate overall return from the initial investment until the end of the withdrawal period would be:

Withdrawal Period
Starting ValueWhat is the principal balance when starting withdrawals?
Estimated Annual Income*If withdrawing to \$0 balance, what is the annual withdrawal amount?
Total WithdrawalsWhat is the sum of the total of those annual income payments?
Final Ending Value
Total Net Return

What did the initial principal earn from principal start to withdrawal end?

Annual Net Return

What is the average annual net return? This is the observed compound growth rate from principal start to withdrawal end.

*The Estimated Annual Income calculation is based on a standard annuity payment formula used to calculate the periodic payment on an annuity.   For further explanation of the formula please refer to http://www.financeformulas.net/Annuity_Payment_Formula.html

A hypothetical example:

Here is a hypothetical example illustrating how you might use our annuity calculator to evaluate a deferred variable annuity. We will show how you might use the calculator, how the annuity grows during your working years, and how the annuity generates income during retirement. Here are the assumptions we made in this hypothetical example:

• Let’s assume you are a 55 year old working male, planning to retire in 10 years, at age 65
• Men aged 55 are generally expected to live to 84 on average (84 - 65 = 19 years in retirement).i Of course your life expectancy may differ.
• You have \$100,000 in cash to invest and are considering a variable annuity with a guaranteed withdrawal benefit.
• In retirement, you plan on annuitizing for guaranteed income.
• After exploring AnnuityAssist.com, you discover that:
• S&P 500 returns have averaged about 8% per year over the last 20 years.ii
• Annual expenses for variable annuities with guaranteed income benefits average 3.34%.iii
• Current long term treasury interest rates are approximately 3%.iv

Using the above information, you would enter the following values into the calculator:

After clicking on “Calculate”, the following values appear in the Growth Period box and represent investment results during the 10 years before retirement:

If the investment had returned 8% per year without any fees, profit on a \$100,000 investment is estimated at \$115,891. However, total estimated cost of annuity fees is \$43,034.42 over 10 years. As a result of fees and because some of the impact of compounding returns has been lost, this annuity is estimated to return only about 4.7% per year.

Hypothetical gains, net of fees, would be closer to \$57,691 on this \$100,000 investment. The ending value of \$157,691 can then be used to generate income in retirement. Below is a chart representing the growth of your hypothetical annuity prior to retirement.

Upon retirement at age 65, let’s assume you annuitize the \$157,691 or buy an immediate annuity of the same value. The Withdrawal Period box below shows the total expected annuity income.

Buying an immediate annuity or annuitizing a deferred annuity, is generally an irrevocable decision. The entire principal of \$157,691 is exchanged for a future income stream, leaving \$0 to pass to your beneficiaries.

With a lump sum of \$157,691 the calculator estimates an income annuity would provide \$11,009 of income per year for the rest of your life. If you live to the average age of 84, your total income during 19 years of retirement will be \$209,172. For comparison, if you had paid no fees during the growth period, the \$215,891 ending value from chart 1 would provide \$15,697 of income for the rest of your life—a difference in income of \$4,688 per year. Minimizing fees during the growth period (accumulation phase) is obviously very important, and can have a lasting impact even after the growth period is over.

The below chart illustrates the steady income provided by the annuity with calculator terms in quotation marks.

Interpreting the results: The calculator tool estimates that a \$100,000 investment with these terms would hypothetically expect to pay \$209,172 in total income on average—this is your expected future value. The 29 year total return on \$100,000 is therefore 109.17%, net of fees, or about 2.6% per year. Since the long-term average inflation is about 3% the investment may actually lose purchasing power.v

In this example the annuity also may not provide you with the best option for guaranteed retirement income. The fees during the growth period have dampened returns. A similar investment in a low cost mutual fund with similar investment characteristics would likely have grown more and could still be converted into an income annuity upon retirement.

 ii Thomson Reuters, S&P 500 Total Return 12/31/1992 to 12/31/2012, inclusive of dividends and interest. iiiInsured Retirement Institute, 2011 IRI Fact Book (Washington, DC: IRI, 2011), 36-38, 56. Mortality & Expense Risk Fee of 1.18%, Administrative Fees of 0.19%, optional Guaranteed Lifetime Withdrawal Benefit (GLWB) of 1.03%, and Fund Expense for underlying funds in variable annuity of 0.94%. iv Thomson Reuters v Source: Global Financial Data, Inc. as of 2/5/2013. The Consumer Price Index (CPI) averaged 2.97% over the period 12/31/1925 –12/31/2012.