The Annuity Formula – How to Make Sense of the Formula Used for Comput…

The annuity formula is one of the things that you need to understand and be familiar with if you are setting up your retirement fund by buying an annuity. With a basic knowledge of how the annuity formula works, you will be able to figure out how much you need to pay towards your retirement investment as you build it up. You will also be able to compute how much you will be able to get once you become able to withdraw your payments upon retirement.

How It Works

So how does this formula for computing annuities work? The formula basically works on the application of time values on money. When you work with the annuity formula, what you are doing is calculating the future value of your money based on the interest rate currently in place when you made your retirement investment.

In working with the formula, you are simply calculating the value of your money after a given number of years with the given interest rate factored in. You only need to be familiar with how simple and compound interests work in order to calculate your annuity.