RESUME APPLICATION PAY PREMIUM
Fund Performance

Fund Performance

Knowledge Center

Knowledge Center

About Us

About Us

Tools and Calculators

Tools & Calculators

Quick links

Mobile (Download app)
  • Webpages
  • Documents
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment

For NRI Customers

(To Buy a Policy)

(If you're our existing customer)

For Online Policy Purchase

(New and Ongoing Applications)

Branch Locator

For Existing Customers

(Issued Policy)

Fund Performance Check

RESUME APPLICATION PAY PREMIUM

What do you want to do?

Quick links

Mobile (Download app)

Download HDFC Life App

Buy plans, track your policy, make renewal payments & monitor fund performance with HDFC Life App, Download Now!

Apple Logo Go to Google Play Store

Future value of annuity

The Future Value of Annuity is a crucial concept for anyone involved in retirement planning. It helps individuals and businesses plan for their future and determine how much regular payments are growing over time, considering a fixed interest rate.

Understanding this concept is important for budgeting and planning for future investment, helping you reach an informed decision about how to save and invest. By gaining a thorough understanding of the impact of interest rates and inflation on your invested amount, you can better achieve your desired financial goals.

Continue reading this blog to gain detailed insights about what is future value annuity, its formula, and more. 

10 year retirement planget monthly pension of 30Kretirement planning in 30sget monthly pension of 10K

Retire in Style!

Start Saving Today for a Stress-Free Tomorrow. Grab Your Retirement Plan!

CALCULATE PREMIUM TALK TO OUR ADVISOR
Pension Schemes and Retirement Plans

GET A FREE QUOTE

We respect our customers' privacy and do not spam them.

I authorize HDFC Life and its representatives to contact me through Call, Email, SMS or WhatsApp. This consent overrides my registration under DNC / NDNC (this would mean we would contact you even if you are registered on any Do Not Disturb list).
Future value of annuity

Understanding the Future Value of Annuity

Future value of annuity
December 20, 2024

Table of Content

 

What is the Future Value of Annuity?

The future value of annuity is the value of a series of payments that you will receive at a future date, compounded at a particular rate of interest. Future value is usually calculated considering compounding interest, which means that interest is earned on the initial amount as well as on unpaid interest accumulated from previous periods.

In simple words, the future value (FV) of annuity is the interest earned on a principal amount of annuity plus interest. The main factors affecting an annuity plan’s future value is invested capital, projected interest rate and number of payments. Another important thing to consider is whether your annuity is paid at the beginning (annuity due) or the end of each period (ordinary annuity).

Gaining a proper understanding of the future value of an annuity plan enables you to analyse how much your money can grow over time, which assists you with long-term financial planning.

How to Calculate the Future Value of Annuity?

The future value of annuity is the total amount accumulated through regular investments with compounding of interest over a certain period. Thus, instead of calculating the amount you need to save at present to earn a lump sum amount in the future, the future value of annuity lets you analyse how your savings grow over time.

The future value calculation depicts the required amount of an investment account after taking in account the effect of compounding. Suppose you are investing Rs. 1,000 in installments monthly for a period of ten years. Assuming the rate of interest is 8% p.a. (also considered the growth rate), we will analyse the potential value after ten years.

Here’s where you need to use the annuity formula. This annuity formula will help you determine how much regular payments will be worth at a certain future date. The future value annuity formula is depicted as follows:

Future Value of Annuity = P * [(1+r)^n – 1/r]

Where p denotes the periodic payment, n stands for the number of years, and r is the interest rate periodically.

For the above example, the future value of investment after ten years will be Rs. 1, 87,745.85.

So, if you are planning to make a lump sum investment each year or month, this formula will provide a rough estimate of the money you could have earned in the later period. If you are making regular loan payments, the future value will assist you in calculating the overall cost of your loan.

Example of Future Value of an Annuity

Learning how to calculate the future value of an annuity can help you with retirement planning in your own life. For proper retirement planning, you need to understand how much you must save each month from now on. This is, however, possible if the retirement income, expected rate of interest, and years until retirement are known to you.

Let us consider an example. For instance, during the time of retirement after 20 years, suppose you want Rs. 20,00,000. With an annual rate of interest of 6%, to find out how much to save each year, the formula for future value annuity can be used.

The formula for future value of an annuity is:

FV = P[(1+r)n – 1] / r(1+r)

As per the data provided, the FV is Rs. 20, 00,000, the annual rate of interest is 0.06, and the number of years is 20. Putting these values in the above equation, we get,

P = ₹20, 00,000 / (((1 + 0.06)20 - 1) / 0.06) * (1 + 0.06)

After calculation, it becomes Rs. 55,000 approximately per year. This means that around Rs. 4583 (50,000/12) needs to be saved each month to have Rs. 20, 00,000 during retirement.

Benefits of Understanding Future Value of Annuity

The future value of annuity concept is the total amount of money you will receive from retirement and pension funds after investing a fixed amount consistently over a period of time. A proper understanding of this concept offers numerous benefits, as mentioned in the details below:

  • Financial Planning and Retirement Benefits

Gaining knowledge about the future value of an annuity enables you to reach your desired financial plans post-retirement. With this concept, you can analyse how much you can expect in future through regular investment at present. This will also help in achieving your future goals which could include purchasing a home, leading a comfortable retirement life, meeting the educational expenses of your child, and so on.

Thus, with little contributions from now on, you can plan ahead and avoid being financially drained in later years.

  • Impact on Investment Strategies

Gaining a proper understanding of the FV of annuity enables in making wise investment choices. For instance, you can make a thorough comparison of different investment options available such as retirement plans, fixed deposits, mutual funds, and others. If you are investing for retirement, you can use a pension calculator to estimate how much you need and find the right type of pension fund for your goal.

Investing now for high retirement savings not only secures your future but also instills a disciplined approach to saving and achieving financial goals.

  • Explain Long-term Financial Security

Knowing about the future value of an annuity assists in maintaining financial stability in the long run. Alongside this, you can also gain knowledge of inflation, interest rates, and the power of compounding over time. With this, you can proceed towards taking small steps to protect and grow your wealth and maintain peace of mind for you and your family.

How are Present Value and Future Value Related?

The present value denotes the worth of future income at present generated by that investment. In other words, the present value of an annuity is the desired amount of money to invest at present to generate a certain amount of income in the future. Considering the payment amount, rate of interest, and number of payments, the calculation of present value lowers the value of future payments to derive a fixed income after a period of time.

On the other hand, the future value denotes the total amount of money accumulated through consistent investment over a certain period, considering the compound interest. Using the formula for future value of annuity, you can determine how your savings can grow with a certain rate of investment over a specific period.

Using an FV Annuity Table

The FV annuity table is widely used for accurate determination of the future value of annuities. The variables used in this table are similar to the variables used in a present value annuity table.

This table most commonly serves the purpose of forecasting the future worth of an annuity and helps to predict long-term financial goals. Alongside this, the FV annuity table also assists in estimating the cumulative value of invested or savings amount over time.

What is a Future Value Constant?

The one and most important factor to consider while calculating future returns is the future value factor. This future value factor is the accumulated growth that a lump sum or series of cash flow depicts. A future value factor with a value of 1 indicates that the series value will be the same as the value that prevails today.

Summary

Be it for personal financial planning or business strategies, gaining a clear understanding of future value of annuity is essential to create a clear path and ensure financial stability for the future. By learning to use a future value annuity calculator and a pension calculator,  you enable smart investment strategies and make your financial journey more easily attainable.

The annuity calculator enables easy and hassle-free estimations of your desired investment capital. This calculation helps in planning investments for regular cash flow post-retirement. Thus, with the help of the future value annuity calculator, you can calculate your required contributions and reach your desired financial goals for a safe and secure future.

Frequently Asked Questions ( FAQ) on Future Value of Annuity

1. What is the future value annuity formula?

The future value of annuity formula is: FV of annuity = P*[(1+r)^n-1/r]

2. What is the future value of annuity for?

The future value of annuity denotes the total value of a series of payments made in the future from your investments following a certain compound interest rate and a specified time frame. The formula followed for the future value of annuity is FV = P[(1+r)n – 1] / r(1+r)

3. What is the PV and FV of an annuity?

Present value is the required sum of money needed for purchasing an annuity or if the annuity is already purchased, it is the current account value due if the contract expires. Future value on the other hand is the rupee amount that accumulates over time when you continue investing a certain sum over a specific period.

4. What is the future value of an annuity problem?

The future value of an annuity problem denotes the calculation of payments made regularly over time considering a specific rate of interest. It also determines how much an annuity can grow within a specified date. The ultimate goal is to derive the value accumulated towards the end of tenure.

5. What is the value of the annuity?

The value of an annuity is the combined value of all payments made in the future or at present over a certain period. Factors such as the rate of interest, payment amount, and time period are taken into consideration.

6. What is the future value and present value?

The future value denotes the total amount of money an investment grows by a specified period, considering the compound rate of interest. The present value is the worth of the invested sum of money considering a specific rate of interest.

Related Articles

Talk to an Advisor right away

Not sure which insurance to buy?

Talk to an
Advisor right away

Talk to an Advisor right away

We help you to choose best insurance plan based on your needs

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

LinkedIn profile
Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

LinkedIn profile
Reviewed By Reviewed By:

Here's all you should know about Retirement Plans.

We help you to make informed insurance decisions for a lifetime.

Understanding the Future Value of Annuity

Understanding the Future Value of Annuity

Use the future value of annuity formula and FV annuity table to estimate your returns. Quick access to a future value table for calculations. Secure your financial future.

What Are Retirement Funds?

Guide on Commuted Pension Scheme

Understanding Types of Annuities

Explore different types of annuities in India, including immediate, variable, deferred, fixed, and lump-sum options. Make informed choices for a secure financial future.

Understanding Types of Annuities
HDFC life
HDFC life

HDFC Life

Reviewed by Life Insurance Experts

HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER

We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Life Insurance Popular Search

Popular Searches

ARN - ED/12/24/19208

down-arrow