Understanding Dollar Value of Your Annuity Payments is crucial for understanding loans, and investments that require or yield periodic payments. For instance, how much of a mortgage can I afford if I can only pay $1,000 monthly? How much money will I have in my account if I deposit $2,000 at the beginning of each year for 30 years, and earn an annual interest rate of 5%, but is compounded daily?

An annuity is a series of equal payments in equal time periods. Usually, the time period is 1 year, which is why it is called an annuity, but the time period can be shorter, or even longer. These equal payments are called the periodic rent. The amount of the annuity is the sum of all payments. An annuity due is an annuity where the payments are made at the beginning of each time period; for an ordinary annuity, payments are made at the end of the time period. Most annuities are ordinary annuities.

Analogous to the future value or and present value of a dollar, which is the future value and present value of a lump-sum payment, the future value of an annuity or Future Payments For Cash is the value of equally spaced payments at some point in the future. The present value of an annuity is the present value of equally spaced payments in the future.

Avoiding taxes is, when done legally, one of those things that almost everyone truly enjoys. There are very, very few people who will wax eloquent about the pleasure of paying taxes. The most attractive feature to most folks about an annuity is precisely that tax-deferred growth. And, indeed, as long as the money remains inside the annuity, the government won't tax any of the earnings. But all good things must come to an end, and sooner or later a tax-deferred annuity is going to get taxed. A deferred annuity has two phases, the accumulation phase and the distribution phase. During the accumulation phase, the annuity grows untaxed through the years as the investment compounds. In the distribution phase, the annuity is paid out. The payment may be made as one lump sum or as a series of scheduled payouts over a specific period or a lifetime. In insurance-speak, a series of scheduled payments is called "annuitisation," and the recipient is called the "annuitant."

Regardless of the payment method, some income taxes will be due on every annuity payment the annuitant receives. So if you have a good idea about the Dollar Value of Your Annuity Payments, you can easily estimate the Future Payments for Cash. If the payment is made as a lump sum, then income taxes will be due on the difference between the amount paid into that annuity and its value when it is paid back.