An annuity is a series of payments made at equal intervals over a determined period of time. The payments can be made monthly or annually into an investment vehicle for a period of time, or the payments can be received by a beneficiary for a period of time. Banks, insurance and investment companies all offer a wide range of annuities. Annuities can also represent streams of income, such as payouts from an investment or reverse mortgage over time.

Here we focus on valuation of two simple annuity forms which provide a foundation for evaluating all of the other types of annuities.

• Annuity Investment: You are the investor and your annuity investment is represented by a periodic investment of a fixed sum over a determined period of time, such as annual deposits to a savings account or money market fund. What will the value be at the end of the road?
• Annuity Income: You are the recipient of a fixed stream of payments over a period of time, which is becoming a more common scenario as our population ages. In a reverse mortgage, as a common example, what is a fair value for the promised stream of income?

Note that results vary widely depending on expected investment returns. Be sure to carefully assess your risk profile and carefully determine an appropriate rate of return for you.