How do I Calculate Retirement Annuities?

By: Ryan Menezes

Retirement annuities, including IRAs and 401(k)s, vary considerably in their details. Different annuities let you contribute different amounts annually and let you withdraw money at different maturities. They offer varying tax benefits and varying tax liabilities. But annuities all grow similarly: by applying a growth rate on a principal that grows with each contribution. The final value of the annuity depends on the the size of this growth rate, the size of the contributions and the length of time before you began withdrawing.

Step 1

Add 1 to the annuity's growth rate. For example, if money in your annuity grows by 6 percent annually, add 1 to 0.06 to get 1.06.

Step 2

Raise this sum to the power of the number of years until you retire. For example, if you will retire in 25 years, raise 1.06 to the power of 25 to get 4.292.

Step 3

Subtract 1 to get 3.292.

Step 4

Divide the result by the annuity's growth rate. Continuing the example, divide 3.292 by 0.06 to get 54.87.

Step 5

Multiply your annual contribution by this factor. For example, if you contribute $5,000 each year to your retirement annuity, the annuity will be worth $274,350 when you retire.



About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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