How to Calculate the Rate of Return on Annuities

Annuities offer higher returns when the interest rate rises.

Annuities offer higher returns when the interest rate rises.

If you're shopping around for annuity investments, you'll find that each states its rate of return, leaving you no need to calculate rates manually. But you can calculate your target return rate on an annuity to reach a desired level of savings. If you find that no annuities offer your calculated rate of return, you may have to revise your expectations and seek a more modest savings goal.

Type the amount that you will deposit each year into a financial calculator, and then press "PMT." If you do not have a physical financial calculator, use an online one (see "Resources").

Type the number of years until you start withdrawing from the annuity into the calculator, and then press "n."

Type your target savings level into the calculator and then press "FV."

Type "0" and then press "PV" to represent the annuity's balance before you make any deposits.

Press "Compute" and press "i" to find the annuity';s rate of return. For example, if you deposit $4,000 each year for 20 years and hope to save $300,000, you'll see that you need a rate of return of 12.3 percent.

Items you will need

  • Financial calculator

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