Shopping For An Annuity?
Marshall Loeb of CBS Marketwatch provides some tips.
Never fear. The immediate fixed annuity is a relatively simple tool to guarantee yourself regular income after you retire. You pay a lump sum to the insurer and in return you get a monthly check until you die. I say "relatively" simple because you still need to calculate an annuity's internal rate of return since each payment returns some of your principal to you.
Unfortunately the article doesn't explain the internal rate of return calculation. That's my homework assignment this weekend. I'll try to explain this financial calculation later this weekend or point out some resources on the web that help.
Update on Monday, June 5 by
Wise Owl
Wise Owl
Here's Quicken's definition of Internal Rate of Return (IRR)
The growth rate of your money over a time period relative to the amount invested. IRR, which compares the profit to the amount invested, is expressed as a percent gain or loss for easy comparison with other percent changes for the same time period. The IRR calculation is based on continuous compounding.
This is more difficult than I thought. I'll keep looking for a simple explanation to help us evaluate income annuities.
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