Pension annuity jargons simplified
A pension annuity calculator gives an estimate of how much retirement income your savings can get you. There are free calculators available online that can help you plan a comfortable retirement. Here are some jargons and technicalities that would come up during calculation:
- Annuity – is a simple investment that in return for a capital sum, regular annual repayments with interest are paid. The main advantages are annuities lets one reserve a large sum of money and defer paying taxes.
- Single life annuity – denotes coverage for an individual. Annuities that last for the life of the spouse also is called joint-and-survivor annuity.
- Fixed annuity – are usually offered by insurance companies and pay guaranteed rate of interest.
- Variable annuity – allows the investor to choose from a selection of investments. The payment the investor reaps is determined by the performance of these investments chosen.
- Repayments – Choosing the wrong payout option might be detrimental to leading a comfortable retirement. Many choose life annuity i.e. a steady monthly payout. The other option is taking the money lump sum; this has its own risks and advantages.
- Immediate annuity – is also known as income or payout annuities; they are very similar to a life insurance policy. Income annuity stats paying off immediately.
- Longevity annuity – known as advanced life delayed annuity, this can be used as a supplementary retirement investment as the payout begins after the investor turns 80.
- Vesting – is the process that gives an employee rights over employer’s contribution towards their retirement plan or pension plan, depending on how long the employee has worked there. The two types of vesting are graded vesting and cliff vesting.
- Annuity is tax-deferred. The sum contributed towards the annuity is not taxed, but the earnings tax as per the regular income tax rates.
Smart tip: you’ll receive more if you buy your annuity when interest rates are higher. Try out various online calculators and enter different investment amounts to see what your retirement income might be.