Annuity Or Lump Sum Calculator

Financial Equations:

\[ \text{Annuity FV} = PMT \times \frac{(1 + r)^n - 1}{r} \] \[ \text{Lump Sum FV} = P \times (1 + r)^n \]

Annuity Payment (PMT):

Lump Sum Principal (P):

Interest Rate (r):

decimal

Number of Periods (n):

periods

Annuity Future Value:

Lump Sum Future Value:

Unit Converter ▲

Unit Converter ▼

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1. What is Annuity vs Lump Sum Comparison?

This calculator compares the future value of a series of annuity payments versus a single lump sum investment. It helps determine which investment strategy would yield higher returns over time.

2. How Does the Calculator Work?

The calculator uses two financial equations:

\[ \text{Annuity FV} = PMT \times \frac{(1 + r)^n - 1}{r} \] \[ \text{Lump Sum FV} = P \times (1 + r)^n \]

Where:

\( PMT \) — Regular annuity payment amount
\( P \) — Initial lump sum principal
\( r \) — Interest rate per period (as decimal)
\( n \) — Number of periods

Explanation: The annuity formula calculates the future value of regular payments, while the lump sum formula calculates compound growth of a single investment.

3. Importance of Future Value Calculation

Details: Comparing these values helps in financial decision making, such as choosing between pension options, investment strategies, or settlement offers.

4. Using the Calculator

Tips: Enter all values in consistent units (same currency, time periods). For annual calculations, use annual rate and years. For monthly, use monthly rate and months.

5. Frequently Asked Questions (FAQ)

Q1: Which is better, annuity or lump sum?
A: It depends on the interest rate, time horizon, and your investment options. This calculator helps quantify the difference.

Q2: What if the interest rate is zero?
A: The annuity FV becomes simple multiplication (PMT × n), and lump sum FV remains the principal (no growth).

Q3: How often should compounding occur?
A: The calculator assumes compounding frequency matches the payment frequency. Adjust rates accordingly.

Q4: Are taxes considered in this calculation?
A: No, this is a pre-tax comparison. Actual decisions should consider tax implications.

Q5: Can this be used for retirement planning?
A: Yes, it's useful for comparing pension options or systematic withdrawal strategies versus lump sum investing.