Pension annuity jargon simplified

Pension annuity calculators give an estimate of how much retirement income your savings can get you. There are free calculators online that help you plan a comfortable retirement. Here are some jargon and technicalities that would come up while using pension annuity calculators:

Annuity – It is an insurance contract that takes the form of an investment, providing an income source with periodic payments for an agreed upon time period for the investor and their beneficiary.
Fixed annuity – It carries a guaranteed rate of interest and gives a guaranteed payout.
Variable annuity – It depends on the performance of its underlying investments and the payout may vary every month.

• Choosing the wrong payout option might be detrimental to leading a comfortable retirement. The most commonly chosen option is, the payout for the full amount over a particular period and the balance left after death is paid to the beneficiary.
• The principal balance is the sum of money you pay (monthly contributions from a paycheck or an initial payment) to purchase the annuity.
• The standard formula for calculating payments includes PVOA factor (Present Value Of Annuity) which is available online.
• The future value of your current principle might not remain the same, owing to inflation and other unpredictable economic causes. Consider this while calculating to maintain a comfortable purchase power.
• A defined contribution pension plan is based on contributions from you and/or your employer, or a third party.
• Guaranteed lifetime withdrawal benefit is an optional benefit which provides lifetime income stream that can be turned on in the future.

Immediate annuity – It is purchased with a single premium and the payouts begin within one year of the contract date.
Vesting – It 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.
You’ll receive more if you buy your annuity when interest rates are higher. Try out various online pension annuity calculators and enter different investment amounts to see what your retirement income might be.