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The question is around annuity payments and future dollars.

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(@tucker201)
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Joined: 3 years ago
Posts: 4
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My scenario is that the same annuity will pay out in two stages.
Stage 1
starts 2027 and runs until 2039, this stage the annual payments will grow 3%.
So for simple math, say annual payout in 2027 is $1,000 the 1st year, growing 3%. In the calc sheet it shows Todays dollars as that $1,000 amount for the allotted time span. In Future dollars that amount is showing year 1 (2027) as $1,194 and growing each year so that by by year 2038, the amount is $1,653.
Stage 2 is the annual amount is fixed and loses it value by 3% (inflation) and that shows correctly in Today and Future value.
So the issue is around the starting amount in Future dollars because is it figuring a value that isn't correct.. It should start in 2027 as $1,000 not $1,194, because the starting amount of $1,194 is growing at 3% which makes quite a bit of difference since I'm not really talking about a $1,000.
If I put in $838 in Todays dollar value, the Future dollar amount is correct (or close) and showing as $1,001 as a starting base that grows 3%. How is the calculation done, is it on Future dollars (which seems to be the logical way)?
Should I input the actual Todays dollars annual amount for 2027 or make it less ($838 instead of $1,000) per the example above?
Thank you,
Dave

   
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(@smatthews51)
Member Admin
Joined: 4 years ago
Posts: 689
 

Dave,

Regarding the period from 2027 to 2039, you should enter the payout amount as $1000 but leave the REAL rate of return field blank (assuming inflation is set at 3% on the Home page). If you do this you should see the payout locked in at $1000 in today's dollars throughout that period. With that said, though, the tool isn't designed to model two different payout amounts from the same annuity so as to be able to model a fixed payout amount in terms of future dollars from 2039 onward. So, you might consider setting up annuity #2 for that period.

Stuart


   
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