Understanding Annuity Growth and Accumulation
An annuity growth calculator shows how your investment grows during the accumulation phase, before you start taking income. Unlike immediate annuities that begin payments right away, deferred annuities allow your money to grow tax-deferred for years or decades, potentially resulting in substantially larger future income streams.
How It Works: The calculator compounds your initial investment and any additional contributions at the annuity's credited interest rate. For fixed annuities, this rate is guaranteed. For variable annuities, returns depend on underlying investment performance. For indexed annuities, returns are tied to market index performance with caps and floors. Tax-deferral means you don't pay taxes on gains until withdrawal, allowing the full amount to compound.
When to Use It: Use this calculator when comparing annuity products to other retirement vehicles, evaluating whether to annuitize now or let the investment grow longer, or projecting future retirement income based on current savings. It's particularly useful when you're 10-20 years from retirement and deciding how much to allocate to annuities.
Key Concepts: Tax deferral is the primary advantage—growth isn't taxed until distribution. Surrender charges apply if you withdraw funds early (typically in the first 5-10 years). Minimum guaranteed rates protect against loss in some products but may limit upside. Death benefits vary by product, with some guaranteeing your heirs receive at least your principal if you die during accumulation.
Common Mistakes: Underestimating fees—variable annuities can charge 2-3% annually in fees, dramatically reducing net growth. Failing to compare annuity growth projections against low-cost index funds often reveals better alternatives for long time horizons. Many people also lock up money they might need in emergencies, triggering surrender charges. Not understanding the difference between credited rate and actual net return after fees leads to disappointment.
Pro Tips: Generally, annuities make most sense for ultra-conservative investors or those who've maxed out other tax-advantaged accounts (401k, IRA). For younger investors with long time horizons, low-cost index funds typically outperform due to lower fees. Consider annuities primarily for their guaranteed lifetime income features in retirement, not growth during accumulation. If growth is your goal, compare after-fee returns against alternatives. Use the annuity's surrender schedule to understand liquidity constraints, and only invest money you won't need during the surrender period.