We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is an Annuity Factor?

John Lister
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The annuity factor is a figure that can be used to calculate the present value of an future payments from an annuity. The figure is based on the annuity paying $1 (USD) for each payment period. This figure is then multiplied as appropriate to give the figure for the actual annuity in question.

An annuity is a financial product in which the buyer pays a lump sum and then receives a regular payment for a set period. In most cases, this period is the remainder of the buyer's lifetime. This means the lump sum and payment will usually depend on the age, gender, and health condition of the buyer. The most common use of an annuity is to provide a pension. In many countries, the money saved towards a pension must be spent on an annuity as part of the rules that allow those savings to be tax deductible.

When comparing different annuities, it can be tricky to quickly glance at the figures and work out which represents the best value. This is because this value depends on the relationship between the lump sum payment, the income paid from the annuity, and the period for which it runs. This comparison can be made easier through the annuity factor.

Somebody comparing different annuity offers can consult a present value annuity factor table. This compares the number of payments that will be made with the proportion each payment is of the lump sum payment. In effect, this latter figure is equivalent to the interest the annuity holder receives on their initial investment (though unlike most investments, they will not get the original lump sum back).

The present value annuity factor table shows the appropriate annuity factor. This can then be multiplied by the payment to show how much the future payments are worth to the buyer now. This will help the buyer decide if the annuity represents the best deal.

One limitation of the annuity factor is that it requires the buyer to know how long they will receive payments from the annuity for. With a fixed term annuity, this is no problem, but with one that runs for the rest of their life they will have to make a prediction of their remaining lifespan. Consulting an annuity factor table may often show that an annuity that offers the best value if the buyer dies after a few years may not be the best value option if they live for a longer time.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
John Lister
By John Lister
John Lister, an experienced freelance writer, excels in crafting compelling copy, web content, articles, and more. With a relevant degree, John brings a keen eye for detail, a strong understanding of content strategy, and an ability to adapt to different writing styles and formats to ensure that his work meets the highest standards.
Discussion Comments
John Lister
John Lister
John Lister, an experienced freelance writer, excels in crafting compelling copy, web content, articles, and more. With...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.