Take a look at some of the income annuity rates you might see advertised online or in the business section of your local newspaper. When you see immediate annuity payout rates of 7 percent or 8 percent, that sounds like an excellent rate of return for a guaranteed investment. However, you would be wrong to equate income annuity rates with the rate of return you earn on your principal investment.
While it is fine to use the payout (interest) rate to compare products and find the highest income annuity, calculating the exact rate of return on an income annuity is not possible while you are still alive. Someone other than yourself will have to do the computations after you die to determine your actual rate of return. You need several pieces of information to determine the rate of return on your income-producing investment.
- Amount you paid when you purchased the income annuity
- Payout rate or total dollar amount paid
- Number of years you lived from the day you purchased the income annuity
While there are some other factors to consider such as the portion of each payment that is considered return of principal, your rate of return can be calculated with the basic information shown above. When an annuity contract is written, the payout rate is based on your life expectancy. If you live fewer years than expected, the return will be lower. If you live longer than expected your rate of return will increase.
Rate of return calculations are only useful if you are comparing annuities to different types of income-producing investments like certificates of deposit or bonds. When you are just looking for the best lifetime income annuity, the payout rate becomes very important.
Don’t worry if all of that sounds confusing. We are here to help you understand the most important things to consider when purchasing an immediate annuity. Our staff of veteran annuity professionals can help you find the highest income annuity. To start the ball rolling, just click on the orange button and get a free annuity quote.