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Certain pensions offer a lump sum payment instead of annual expenses.

Some pensions allow the owner to either consider a large lump sum at the beginning of the retirement or receive equal annual payments. Using present value of an annuity table, it is possible to work out how much the lump sum regarding the yearly payments would be currently. The present value of any annuity table is a table which shows calculations of the existing value of any annuity factor. Due to the complexity about the calculation, people operate the table.

Difficulty: Tolerably Effortless

Instructions

1 Determine the term of the annuity and the curiosity rate on the annuity. To example, a individual has an annuity that spends $10,000 any year to 20 years. The annuity will receive 5 percent interest each year.

2 Look upwards the phrase and curiosity rate on the existing value regarding any annuity table (view Resources). In the illustration, a term about 20 long time also interest rate of 5 percent is 12.4622. This is the present worth factor.

3 Multiply the present value factor by means of the annual payment. In the example, 12.4622 times $10,000 equals $124,622. Thus, if the person took the pile sum, he should receive $124,622.

References

Investopedia: Lump Sum Versus Regular Pension Expenses

Resources

Research Finance: Existing Worth of an Annuity Table Principles of Accounting: Present Worth of Standard Annuity Table

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