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Note, like on the current page the calculator below is a screen shot and not a working calculator:

With the hypothetical expample below we will show you how might use our annuity calculator, how the money put into 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, 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 12/31/2012

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.

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