Present Value Interest Factor of Annuity (PVIFA) Formula, Tables

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1. Guide to Annuities: What They Are, Types, and How They Work
2. What Is an Annuity?
3. The Main Types of Annuities
4. An Overview of Annuities
5. Life Insurance vs. Annuity
6. Difference Between IRA and an Annuity
7. Best Age to Get an Annuity

Types of Annuities: Part 1

1. Deferred Annuity
2. Fixed Annuity
3. Immediate Payment Annuity
4. Indexed Annuity
5. Individual Retirement Annuity

Types of Annuities: Part 2

1. Joint and Survivor Annuity
2. Ordinary Anniuity
3. Qualified Longevity Annuity Contract

Calculating Present and Future Value

1. Present Value Annuity
2. Future Value Annuity
3. Calculating Present and Future Value Annuities
4. Annuity Table
5. Present Value Interest Factor of an Annuity

1. How Are Nonqualified Variable Annuities Taxed?
2. How a Fixed Annuity Works After Retirement
3. What Happens to an Annuity After You Die

Payouts, Distributions, and Withdrawals

1. Selecting the Payout on Your Annuity
2. Are Variable Annuities Subject to Required Minimum Distributions?
3. How to Rollover a Variable Annuity Into an IRA
4. Distribution Options for an Inherited Annuity
5. Penalties for Withdrawing Money From Annuities
6. Borrowing From an Annuity to Put a Down Payment

Benefits and Risks

1. SPONSORED: How to Navigate Market Volatility While Saving for Retirement Sponsored
2. The Whole Story on Variable Annuities
3. Pros and Cons of Retirement Annuities
4. Biggest Disadvantages of Annuities
5. Risks of Annuities in a Recession

The present value interest factor of an annuity (PVIFA) is a calculation that can help an investor entering into an annuity contract to determine whether it is more advantageous to take a lump-sum payment or to accept a series of payments over time.

The present value interest factor of an annuity is used to calculate the present value of a series of annuities when it is multiplied by the recurring payment amount. The initial deposit earns interest at the interest rate (r), which perfectly finances a series of (n) consecutive withdrawals and may be written as the following formula:

• PVIFA = (1 - (1 + r)^-n) / r

PVIFA is also a variable used when calculating the present value of an ordinary annuity.

Present Value Interest Factor of Annuity (PVIFA)

Key Takeaways

• The present value interest factor (PVIF) formula is used to calculate the current worth of a lump sum to be received at a future date.
• The present value interest factor of annuity (PVIFA) is used to calculate the present value of a series of future annuity payments.
• Both formulas are based on the concept of the time value of money, which states that a sum of money received today is worth more than the same sum of money paid at a future date.

What Is an Annuity Factor?

An annuity factor is a multiplier that is used to calculate the total amount of money that will be paid out over time under the terms of an annuity contract. The annuity factor is comprised of the interest rate, the number of payments, and the total payment. The calculation reveals the impact of interest growth on your fund over time.

What Is the Present Value Interest Factor?

The present value interest factor is based on the concept of the time value of money, which states that a sum of money today has greater value than the same sum of money at a future date due to its earnings potential.

The present value interest factor can be used to determine whether to take a lump-sum payment now or accept an annuity payment in future periods. Using estimated rates of return, you can compare the value of the annuity payments to the lump sum.

The present value interest factor may only be calculated if the annuity payments are for a predetermined amount spanning a predetermined range of time.

Tools to Calculate PVIFA

Online tools are available to estimate PVIFA. You can use either of the following:

• A PVIFA calculator, which determines PVIFA for any combination of entries for an interest rate (r), and a number of payments (n)
• A PVIFA table, which displays the most common interest rates and number of payments.

The major drawback of a present value interest factor table is the necessity to round calculated figures, which sacrifices precision.

Using the Discount Rate for the Present Value Interest Factor

The discount rate used in the present value interest factor calculation approximates the expected rate of return for future periods. It is adjusted for risk based on the duration of the annuity payments and the investment vehicle utilized. Higher interest rates result in lower net present value calculations. This is because the value of $1 today is diminished if high returns are anticipated in the future.

Present Value Interest Factor of Annuity Due

If annuity payments are due at the beginning of the period, the payments are referred to as an annuity due. To calculate the present value interest factor of an annuity due, take the calculation of the present value interest factor and multiply it by (1+r), with "r" being the discount rate.

How Do You Calculate Present Value Interest Factor for an Annuity?

The formula to calculate PVIFA is (1 - (1 + r)^-n) / r, where r represents the period rate, and n represents the number of payments or withdrawals.

What Is the Present Value Interest Factor of an Annuity Table?

It is a simple table that features the PVIFAs of common combinations of rates and terms. For example, each column might feature a different rate while each row features a different term. The corresponding cell for each rate/term is the PVIFA.

What Is the Relationship Between PVIF and PVIFA?

The present value interest factor (PVIF) formula is used to calculate the current worth of a lump sum to be received at a future date.

The present value interest factor of annuity (PVIFA) is used to calculate the present value of a series of annuity payments.

The Bottom Line

Calculating the present value interest factor of an annuity provides a useful way to determine if a lump-sum payment now is a better option than future annuity payments.

The formula, based on the potential interest rate and the number of payment periods, will give you a point of comparison between options.

1. Omni Calculator. "PVIFA Calculator."

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1. Guide to Annuities: What They Are, Types, and How They Work
2. What Is an Annuity?
3. The Main Types of Annuities
4. An Overview of Annuities
5. Life Insurance vs. Annuity
6. Difference Between IRA and an Annuity
7. Best Age to Get an Annuity

Types of Annuities: Part 1

1. Deferred Annuity
2. Fixed Annuity
3. Immediate Payment Annuity
4. Indexed Annuity
5. Individual Retirement Annuity

Types of Annuities: Part 2

1. Joint and Survivor Annuity
2. Ordinary Anniuity
3. Qualified Longevity Annuity Contract

Calculating Present and Future Value

1. Present Value Annuity
2. Future Value Annuity
3. Calculating Present and Future Value Annuities
4. Annuity Table
5. Present Value Interest Factor of an Annuity

1. How Are Nonqualified Variable Annuities Taxed?
2. How a Fixed Annuity Works After Retirement
3. What Happens to an Annuity After You Die

Payouts, Distributions, and Withdrawals

1. Selecting the Payout on Your Annuity
2. Are Variable Annuities Subject to Required Minimum Distributions?
3. How to Rollover a Variable Annuity Into an IRA
4. Distribution Options for an Inherited Annuity
5. Penalties for Withdrawing Money From Annuities
6. Borrowing From an Annuity to Put a Down Payment

Benefits and Risks

1. SPONSORED: How to Navigate Market Volatility While Saving for Retirement Sponsored
2. The Whole Story on Variable Annuities
3. Pros and Cons of Retirement Annuities
4. Biggest Disadvantages of Annuities
5. Risks of Annuities in a Recession

The present value of an annuity is the current value of future payments from that annuity, given a specified rate of return or discount rate.

A charitable gift annuity is an arrangement for a series of income payments for life, to be paid to an individual in return for a donation of assets.

An annuity is a financial product that pays out a fixed and reliable stream of income to an individual, which is typically of primary importance to retirees.

Period certain is a life annuity option that allows the customer to choose when and how long to receive payments, which beneficiaries can later receive.

Assumed interest rate (AIR) is defined as the rate of interest or growth rate selected by an insurance company.

A hybrid annuity is a retirement income investment that allows investors to split their funds between fixed-rate and variable-rate components.

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