- Variable annuity
- An insurance contract in which your money is invested in sub-accounts similar to mutual funds, so its value rises and falls with the markets. Earnings grow tax-deferred until withdrawn. In exchange for insurance features, it carries ongoing fees and often surrender charges, both of which this calculator deducts from the projected value.
- Annual fees
- The combined yearly charges on the contract: the insurer’s mortality and expense charge, administrative fees and the underlying fund expenses, expressed as a percentage of the account value. The calculator subtracts them from the gross return each year. Optional riders, such as income or death benefit guarantees, usually cost extra and are not included.
- Cost of fees
- The growth lost to annual fees over the period: what the account would have reached at the gross return minus what it reaches after fees. Because fees are taken every year, they also remove the future growth those dollars would have earned, so the cost compounds and can be much larger than the fee percentage suggests.
- Surrender charge
- A penalty for withdrawing more than the contract allows, or cashing out entirely, during the early years. It is a percentage of the amount withdrawn that typically declines each year until the surrender schedule ends. Enter the charge that would still apply at the end of your chosen period, or 0% if the schedule will have expired.
- Surrender value
- What you would receive if you cashed out the contract at the end of the period: the account value minus any surrender charge still in effect. It is before income tax on the gains, which is due at withdrawal and is not modeled here. Once the surrender schedule has expired, it equals the account value.
- Account value
- The projected value of the contract at the end of the period: the initial premium grown at the gross return minus annual fees. It is what the contract is worth on paper, before any surrender charge or taxes. Actual sub-account performance will vary, including years with losses.
- Initial premium
- The lump sum you pay into the annuity at the start. This calculator models a single premium with no later additions or withdrawals. Some contracts add a bonus to the premium, usually offset by longer surrender periods or higher fees; any bonus is not included here.
- Sub-accounts
- The investment options inside a variable annuity, typically portfolios of stocks, bonds or money market instruments managed like mutual funds. Your account value depends on how the sub-accounts you choose perform. Each has its own expense ratio, which forms part of the annual fees entered in this calculator.
- Gross annual return
- The average yearly return of the sub-accounts before any annuity fees are subtracted. The calculator holds it constant for the whole period, which smooths over real market swings. Your net growth rate is roughly the gross return minus the annual fee percentage, so a 7% return with 2% in fees grows at about 5%.