# Present Value of an Annuity Calculator

Use Present Value of Annuity Calculator to calculate the present value of your Annuity (a pension pot for example) based on the known interest rate and period of time until the annuity is reached (retirement age, disability or death).

Interest Cash Flow (Annuity Payments) Number of Periods: Rate: % Compounding: PMT Amount Growth: % Number of Payments: Payment amount: beginning (due)end (ordinary)
 Present Value of Annuity 763200

## Present Value of an Annuity: The current value of future payments from an annuity The present value of an annuity is based on the time value of money. It is the current value of future payments that could be received. The value is calculated using a specific rate of return.

## What are annuities?

The term annuity is used for a series of fixed payments paid to you or required to be collected from you. This is done for a fixed time period, excluding retirement plans where annuities are paid for a lifetime after retirement. A frequency of payment is always specified, it can be monthly, quarterly, semi-annually or annually.

## Time value of money

What if you were given a choice of being paid for 10k today or 1k each year for the next 10 years? Anyone would choose the first option. This is not just because you can't wait for the money to be received in 10 years, there is more to it. This is due to time value of money.

To continue with the example above, 10k received right now can be invested to earn interest payments. The money invested in lump sum will generate more interest than money invested over the years, even if invested on the same rate of interest.

## Present value of an Annuity Calculator

Calculating present value of an annuity can be a hassle, but at the same time it is important to know the details before you consider investing. Below are the factors that you must know while using a calculator to learn about the present value of annuity.

• Number of Periods - This can be days, weeks, months or years as per your requirement. It should be in line with the other details that you input for the calculation.
• Interest rate per period - What is the interest rate that you are expecting per period on your current amount.
• Compounding - This is the number of times compounding occurs per period. If a period is a year and compounding of interest is annual then this value will be = 1, for quarterly = 3 and so on.
• PMT Amount - This refers to the amount you receive from an annuity.
• Growth - The percentage of growth you get on your annuity payments.
• Number of payments - This refers to the frequency of payments you receive for your annuity on a regular basis.

Based on inputs, you will see the results as present value of your annuity. This can be viewed as:

• Ordinary annuity - This calculation will show you the present value of an annuity if the contributions were made at the end of each month.
• Beginning due - This calculation will show you the results if the contribution to an annuity were made at the beginning of each accounting period. The value will be high because when the amount is contributed at the beginning of a period it has the benefit to earn interest for that entire period.

## Common Situations Where the Present Value of Annuity is Calculated

The present value of annuity calculation takes place in different circumstances, examples are as follows:

• Retirement funding - As discussed above, Annuities are streams of cash flow, which you get after retirement for a selected period. Pension pots are generally used to fund the annuities. Present value of annuity calculations can be helpful in selecting a plan that best suits your retirement needs.
• Loan payments - Present value of an annuity is mostly used for mortgage loan payments. For example, if you can pay £10,000 as a monthly payment, how much loan amount you can borrow at the interest rate of 6% P.A. for 20 years term.
• Real estate - Real estate investors evaluate the present value of a mortgage by discounting future payment streams of payments. These payments are combined principle and interest that can be discounted back to present cash value. Results will show the investors that the amount they are paying is higher or lower than the expected future value.
• Court settlements - The value of court settlements can be determined by the present value of an annuity. This helps the receiving parties decide if they want to go for a total one-time cash settlement or a regular cash settlement over a selected period of time.

For instance, you are granted a cash settlement of 2k per month for a period of 20 years. However, you are not comfortable with that arrangement and want to opt for a one time cash settlement. The present value of this can be calculated with present value of an annuity method. This will help you make an appropriate decision.

In summary, the calculation of the present value of an annuity can be a complicated task. At the same time, it is a very important factor when it comes to your financial and retirement planning.

The calculator enables you to complete these calculations easily as it is online, free to use and time saving. You just have to collect the correct data in order to compute the present value of an annuity. It will help you make better decisions with just a few inputs and clicks.