An annuity is a fixed sum of money that is paid to someone every year, generally for the rest of their life.
What is Immediate Annuity?
Immediate annuities are long-term, tax-adjourned contracts generally purchased from any insurance company. It provides immediate regular payments in exchange for an investment that was done in a lump-sum manner. These payments last for life or a specified period. Start taking your income as soon as possible through it.
Formula
P = [A x i] / [1 - (1 + i) -nt]
Where;
P = periodic payment of an immediate annuity
A = amount of money invest in immediate annuity
i = annual interest rate (annual rate of return for the immediate annuity)
t = number of years you expect to live and receive payments
n = frequency of payments every year
Example
If you invest $50,000 at an 8 percent annual rate of interest, intending to receive payments for 10 years, you'll receive a yearly payment of [50,000 x .08] / [1 - (1 + .08) ^ -10] = $7451.47.
Created: May 18, 2018
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