1. What is an Ordinary Simple Annuity?

An ordinary simple annuity is a series of equal payments made at the end of consecutive periods over a fixed length of time. It's commonly used in retirement planning to calculate the future value of regular savings contributions.

2. How Does the Calculator Work?

The calculator uses the ordinary annuity formula:

Where:

• \( FV \) — Future value of the annuity
• \( PMT \) — Regular payment amount
• \( r \) — Interest rate per period (in decimal form)
• \( n \) — Number of payment periods

Explanation: The formula accounts for compound interest on each payment, with payments made at the end of each period.

3. Importance of Retirement Planning

Details: Understanding the future value of regular contributions helps in setting realistic retirement goals and ensuring financial security in later years.

4. Using the Calculator

Tips: Enter the regular payment amount in dollars, the periodic interest rate as a decimal (e.g., 0.05 for 5%), and the total number of payment periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity payments are made at the end of each period, while annuity due payments are made at the beginning.

Q2: How often should I make contributions?
A: More frequent contributions (monthly vs. yearly) generally yield better results due to compounding.

Q3: What's a realistic rate of return?
A: Historical stock market returns average 7-10% annually, but conservative estimates often use 4-6% for retirement planning.

Q4: Should I adjust for inflation?
A: Yes, consider using a real rate of return (nominal rate minus inflation rate) for more accurate projections.

Q5: How does this relate to 401(k) or IRA accounts?
A: This calculation models regular contributions to tax-advantaged retirement accounts with compound growth.