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December 18, 2014
A well-appointed retirement portfolio isn’t dependent on one source of income to sustain you. A much safer approach is diversification. That way, if one source falls flat you’re not left high and dry. Annuities are one way to diversify, but they should be approached with a lot of caution. With an annuity calculator, you can decide how much to invest, and where to invest it.
Here’s what you need to know about how to use an annuity calculator and what they can do for you:
Annuity Calculators Guide You Through the Process
Annuity calculators generally follow a similar process. They begin with fields for you to enter your information. For example, you could begin by entering your current age, the age when you want to retire, and how much income you’ll want from the annuity.
After entering all of the information required by the calculator, your results begin to appear at the click of a button. The calculator analyzes your information and produces a report specifically for you.
You’ll Learn Whether Your Ideas are Accurate
Maybe you know all about annuities, and maybe you don’t. Either way, you’ll learn whether the amount you want to invest will produce the amount of income that you’ll need through retirement.
Most annuity calculators will show how much you’ll need to invest in order to receive a certain monthly income or lump sum. But that’s only part of what they do. These calculators also reveal how long the annuity can sustain those monthly payments, or how many years it will take to deplete the annuity.
The Calculator Helps You Find Options
Chances are, you’ll encounter a surprise or two when using an annuity calculator. Maybe the amount you’re comfortable investing won’t last as long as you’d thought or pay out the monthly income that you need. That’s where this tool can help you find another path.
Seeing the numbers in black and white can be jarring. But it can also lead you to explore other possibilities. Maybe a larger investment is a wiser choice. Or maybe you just need a different kind of annuity from the one you’d planned to help you live the life that you want.
It’s important to remember that annuity calculators can’t do everything. As valuable as they are, they do have limits. Some may account for inflation, but many do not. They generate results based on the information that you provide. So it might be up to you to think about how those results will be altered by cost of living changes as you age.
Annuities should not be anyone’s singular retirement plan, and some financial experts believe the risks far outweigh any reward. For example, David John Marotta writes for Forbes saying that the only guarantee that comes with an annuity is a lower lifestyle as the years pass, because they can’t keep up with inflation.
On the other hand, the Motley Fool writes for Nasdaq that there are valid reasons why an annuity can be a reasonable investment, as long as you are aware of the fees involved.
If you’re thinking about investing in an annuity for a lump sum or lifetime of retirement income, check out New Retirement’s Lifetime Annuity Calculator here. You’ll get the information that you need to make the smartest use of your money.
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