How It Works

What the calculator does

RankMyAnnuity's calculator is an educational tool that models how annuity crediting formulas behave under different assumptions and contract terms.

What the grade measures

Our grade blends contract mechanics, renewal-rate stability, surrender schedule severity, rider or fee drag, liquidity features, and index-related confidence factors.

Guaranteed vs. hypothetical

Guaranteed values are shown separately from hypothetical scenarios. Hypothetical outputs are educational illustrations, not predictions of future credited interest.

How short-history indices are handled

When an index has less than 10 years of live history, RankMyAnnuity shows the available factual live-history context but does not create its own historical-style illustration from that limited record. Users may instead choose their own assumption to explore how the annuity formula works.

What the site does not do

RankMyAnnuity does not provide personalized investment advice, make purchase recommendations, or guarantee future performance.

The "payout rate" problem

When an insurance agent shows you a "7% payout rate," they're calculating it like this:

Payout Rate = Annual Income ÷ Premium
Example: $7,000/yr ÷ $100,000 = 7%

The catch: that $7,000 includes the return of your own principal — it's not all interest. The real question is what annual interest rate makes the math work. That's what this calculator solves for.

The formula

We use the standard deferred annuity present value formula:

PV = PMT × [(1 − (1 + r/k)^(−n×k)) / (r/k)] × (1 + r/k)^(−d×k)

We know PV, PMT, n, k, and d from your inputs. We solve for r iteratively using Newton-Raphson — the same approach used by financial software — to find the rate that makes the equation balance.

What the grade means

Once we have the implied rate, we compare it to current market alternatives — MYGAs, Treasuries, and CDs:

This grade reflects our published methodology across contract features, costs, flexibility, and index-related confidence factors. It is not a recommendation.

Works for pensions and buyouts too

If you're evaluating a pension lump sum vs. monthly benefit, or a buyout offer, the math is identical. Enter the lump sum as the premium, the monthly benefit as the payout, and the expected benefit duration (life expectancy minus current age) as the payout years. The tool will tell you the implied discount rate the pension is effectively offering you.

What a Fixed Indexed Annuity actually credits you

A Fixed Indexed Annuity (FIA) doesn't invest your money in the market. Instead, the carrier uses your premium to buy options on an index, then credits you a portion of that index's gain each year — subject to limits defined in your contract. If the index falls, you receive 0% for that year (your principal is protected). If it rises, you receive a capped or scaled version of the gain.

The Index Crediting Modeler shows hypothetical scenarios for what would have been credited to your annuity under three different crediting methods, using historical index data.

The three crediting methods

Cap Rate

You receive 100% of the index gain up to a maximum ceiling. Gains above the cap are forfeited to the carrier.

Credited = min(Index Return, Cap Rate), floored at 0%
Example: Index +14%, Cap 10%   → Credited 10%
Example: Index −8%,  Cap 10%   → Credited 0%

Spread / Margin

The carrier subtracts a fixed percentage from the index return. You keep whatever remains. Unlike a cap, there is no ceiling — if the index returns 30%, you keep 30% minus the spread.

Credited = max(Index Return − Spread, 0%)
Example: Index +14%, Spread 3% → Credited 11%
Example: Index +2%,  Spread 3% → Credited 0%

Participation Rate

You receive a fixed percentage of the index return — no ceiling, but scaled down. A 60% participation rate means you keep 60% of gains.

Credited = max(Index Return × Participation Rate, 0%)
Example: Index +15%, 60% rate  → Credited 9%
Example: Index −5%,  60% rate  → Credited 0%

These methods can also be combined — for example, a 135% participation rate with a 12% cap. The calculator handles all combinations.

About the indexes

The calculator includes 64 indexes across seven categories: broad equity (S&P 500, Nasdaq-100, Russell 2000, DJIA), international, fixed income, multi-asset, and proprietary volatility-controlled indexes.

Standard indexes like the S&P 500 use actual historical price returns. Proprietary volatility-controlled indexes use published carrier illustrations and fact sheets, which may include backtested data.

A note on backtested data

Many proprietary FIA indexes were created after 2015 — and some as recently as 2021 or 2022. To show historical performance, carriers use backtested data — a reconstruction of how the index would have performed if it had existed.

Backtested results should be read with caution for three reasons:

• They are designed with the benefit of hindsight — the methodology was built knowing what the market did.
• Transaction costs, execution slippage, and liquidity constraints that would have existed in real trading are typically excluded.
• Live performance of these indexes has historically lagged their backtested performance.

When a carrier's illustration shows you 10 years of a proprietary index that launched in 2021, you are looking at backtested data, not live results.

Using Compare Indices

The Compare Indices mode lets you run two strategies side by side with independent index and parameter selections for each. This lets you directly compare, for example, a cap-rate S&P 500 strategy against an uncapped participation-rate strategy.

Limitations to know

• The Income / IRR model assumes fixed, level monthly payments. Variable or inflation-adjusted income streams require manual adjustment.
• It doesn't account for mortality risk (the insurance company's longevity guarantee) — which does have real economic value, especially for long deferral periods or lifetime income riders.
• Tax treatment differences (qualified vs. non-qualified) are not factored in.
• Index returns are annual point-to-point. Monthly or other crediting term structures will produce different results.
• Proprietary index returns are approximations based on published carrier illustrations and fact sheets. Actual credited amounts may differ.
• Benchmarks and index data are periodically updated but may not reflect today's exact rates.
• All outputs are hypothetical educational illustrations. This is an analytical tool, not financial advice.