By definition, an annuity is a contract between you and a 3rd party (usually an

insurance company) whereby in exchange for making a lump sum payment, the insura
nce company promises to do four things:
Provide
Provide
Provide
Provide

an income for a certain period of time,or for life

for accumulation, or asset growth
a death benefit
for long term care benefits

fIXED ANNUITIES:
Immediate annuities--start paying income right now (to start in less than one ye
ar)
Deferred annuities--start paying an income later (anywhere from 1-50 years)
Multi Year Guarantee Annuities (MYGAS)--pay a fixed interest rate each year for
a certain period of time
Indexed Annuities-increase in value depending on the performance of a baseline i
ndex like the S&P 500, Dow Jones, Gold, Real Estate, or even a negatively correl
ated index.
he government doesn't want you to just dip into the pot willy nilly when you ret
ire
after all it has given you tax relief on the contributions you made into you
r pension and wants to get some tax back.
The most popular way of taking your pension money is to buy a lifetime annuity.
What is an annuity?
An annuity is an insurance contract that insures against you living too long. In
return for a lump sum (the money you have saved in your pension pot), an annuit
y provider (insurance company) will give you an annual income for the rest of yo
ur life.
This is great if you live to a ripe old age and can take advantage of the income
, but it s not so good if you die early as you lose your money.
When do I need to buy an annuity?
Last year the government abolished the rule that said you had to buy an annuity
before age 75. The options for taking your money in retirement have increased, a
nd annuities are not the only way to do this anymore.
However, some people may still find annuities suitable. An annuity can be purcha
sed when you start your retirement, whatever age that may be. The earlier you re
tire the longer your money will have to last, which means the income is likely t
o be lower.
How is my annuity rate calculated?
The annuity rate you are offered in other words, the amount of income a provider
offers you
depends on a number of factors.
The younger you are the less income you will receive.
Men receive a better rate because they typically do not live as long as women.
Health and lifestyle can affect your income: those with medical conditions or un
healthy lifestyles can get more income.
Although these personal factors have an impact on your rate, there are also exte
rnal influences that affect annuity rates generally.
When you give the annuity provider your lump sum from your pension pot in turn f

or an income, the provider invests this money to ensure there is enough money to
keep paying the incomes of the retirees it has on its books.
As the providers have to pay out incomes they do not gamble the money on risky i
nvestments on the stockmarket. Instead they invests predominantly in gilts: esse
ntially a short-term loan to the government which pays interest.
However, gilt rates
the interest rate paid by the government have fallen over th
e years as demand for gilts has soared. Lower returns from gilts mean lower inco
me rates.
MONTHLY DEPOSIT
ecurring Deposit is a special kind of Term Deposit offered by banks in India whi
ch help people with regular incomes to deposit a fixed amount every month into t
heir Recurring Deposit account and earn interest at the rate applicable to Fixed
Deposits.[1] It is similar to making FDs of a certain amount in monthly install
ments, for example ? 1000 every month. This deposit matures on a specific date i
n the future along with all the deposits made every month. Thus, Recurring Depos
it schemes allow customers with an opportunity to build up their savings through
regular monthly deposits of fixed sum over a fixed period of time. Minimum Peri
od of RD is 6 months and maximum is 10 years.
The Recurring Deposit can be funded by Standing instructions which are the instr
uctions by the customer to the bank to withdraw a certain sum of money from his
Savings/ Current account and credit to the Recurring Deposit account.
When the RD account is opened, the maturity value is indicated to the customer a
ssuming that the monthly installments will be paid regularly on due dates. If an
y installment is delayed, the interest payable in the account will be reduced an
d will not be sufficient to reach the maturity value. Therefore, the difference
in interest will be deducted from the maturity value as a penalty. The rate of p
enalty will be fixed upfront. Interest is compounded on quarterly basis in recur
ring deposits.
One can avail loans against the collateral of Recurring deposit up to 80 to 90%
of the deposit value.
Rate of Interest offered is similar to that in Fixed Deposits. Earlier it seemed
to be one of the best method to save the amount yield after years of deposit. B
ut effective from June 1, 2015 TDS is applicable on RDs.[2]
PERPETUNITY
A perpetuity is an annuity that has no end, or a stream of cash payments that co
ntinues forever. There are few actual perpetuities in existence (the United King
dom (UK) government has issued them in the past; these are known and still trade
as consols). Real estate and preferred stock are among some types of investment
s that affect the results of a perpetuity, and prices can be established using t
echniques for valuing a perpetuity.[1] Perpetuities are but one of the time valu
e of money methods for valuing financial assets. Perpetuities are a form of ordi
nary annuities.
The concept is closely linked to terminal value and terminal growth rate in valu
ation.
Detailed description[edit]
A perpetuity is an annuity in which the periodic payments begin on a fixed date

and continue indefinitely. It is sometimes referred to as a perpetual annuity. F

ixed coupon payments on permanently invested (irredeemable) sums of money are pr
ime examples of perpetuities. Scholarships paid perpetually from an endowment fi
t the definition of perpetuity.
The value of the perpetuity is finite because receipts that are anticipated far
in the future have extremely low present value (present value of the future cash
flows). Unlike a typical bond, because the principal is never repaid, there is
no present value for the principal. Assuming that payments begin at the end of t
he current period, the price of a perpetuity is simply the coupon amount over th
e appropriate discount rate or yield, that is:
{\displaystyle PV\ =\ {A \over r}} PV\ =\ {A \over r}
Where PV = Present Value of the Perpetuity, A = the Amount of the periodic payme
nt, and r = yield, discount rate or interest rate.[citation needed]
To give a numerical example, a 3% UK government War Loan will trade at 50 pence
per pound in a yield environment of 6%, while at 3% yield it is trading at par.
That is, if the face value of the Loan is 100 and the annual payment 3, the value
of the Loan is 50 when market interest rates are 6%, and 100 when they are 3%.
Real-life examples[edit]
For example, UK government bonds, called consols, that are undated and irredeema
ble (e.g. war loan) pay fixed coupons (interest payments) and trade actively in
the bond market. Very long dated bonds have financial characteristics that can a
ppeal to some investors and in some circumstances, e.g. long-dated bonds have pr
ices that change rapidly (either up or down) when yields change (fall or rise) i
n the financial markets.
A more current example is the convention used in real estate finance for valuing
real estate with a capitalization rate (cap rate). Using a cap rate, the value
of a particular real estate asset is either the net income or the net cash flow
of the property, divided by the cap rate. Effectively, the use of a cap rate to
value a piece of real estate assumes that the current income from the property c
ontinues in perpetuity. Underlying this valuation is the assumption that rents w
ill rise at the same rate as inflation. Although the property may be sold in fut
ure (or even the very near future), the assumption is that other investors will
apply the same valuation approach to the property.
Another example is the constant growth Dividend Discount Model for the valuation
of the common stock of a corporation, which assumes that the market price per s
hare is equal to the discounted stream of all future dividends, which is assumed
to be perpetual. If the discount rate for stocks (shares) with this level of sy
stematic risk is 12.50%, then a constant perpetuity of per dollar of dividend in
come is eight dollars. However, if the future dividends represent a perpetuity i
ncreasing at 5.00% per year, then the dividend discount model, in effect, subtra
cts 5.00% off the discount rate of 12.50% for 7.50% implying that the price per
dollar of income is $13.33.