Planners, Annuities
Whereas an investment is essentially a lump sum derived from monthly saving, an annuity is monthly income derived from a lump sum. Hence unsurprisingly the annuity planner is almost a mirror image of the investment one.
The following notes should be read in associate with those in “Planners, Starting & Warning”, “Planners, Default or Standard Values” and “Planners, Saving, Re-finding & Deleting”.
First select the type of calculation you require by clicking the appropriate button (e.g. “Monthly Income”).
Next select the way the interest should be calculated (i.e. either once per year or month), as different insurers may use different methods.
Finally enter the figures on the right hand side…
- The “Annuity sum” is the lump sum you have available to “buy” your guaranteed future income (e.g. £100,000)
- The “Years of income” is the period during which you’ll receive this guaranteed income (e.g. 20 years)
- The “Sum to remain” is the amount of your initial capital you’d like returned at the end of the scheme (e.g. zero)
- The “Annual increment” is the amount by which you require the guaranteed income to increase, to allow for inflation (e.g. 5 %)
- The “Interest rate” is the compound annual growth rate by which your initial savings will be increased (e.g. 6%)
Click the “Calculate” button to find the result.
Index-linked Annuity
The annuity planner shows that if you start with a lump sum of £100,000 at 6% you will get a monthly income of £685.41 for 20 years (with the interest calculated annually). However in 20 years time, if the rate of inflation has been a steady 5%, that £685.41 will only be worth £258.32. The system cannot pre-empt the future rate of inflation, but if you enter your anticipated inflation rate in the field “Annual increment (% p.a.)” you’ll get a monthly figure that is effectively index-linked at that rate. For example if you add a 5% annual increment to the calculation above you’ll get a monthly income of £455.25, which would then increase by 5% every year to compensate for inflation.
Saving, Deleting & Printing
When you’re satisfied with it you can save the plan, then subsequently re-find it, all as described above in the section on “Planners, Saving, Re-finding & Deleting”.
To print the completed plan…
- Click “File”
- Click “Print”
- Click “Plan”