Modeling a Variable Lifetime Income Annuity

Question:

How can I model a variable lifetime income annuity in ProjectionLab? Does the platform have specific tools for this, or is there an alternative way to approximate it?

Answer:

ProjectionLab doesn’t yet have a dedicated feature for annuities, but you can approximate both the income and expense aspects with a custom setup. Here’s how:

1. Model the Expense: If purchasing the annuity requires a significant upfront cost (e.g., a lump sum), you can model this as a one-time custom expense in your plan. Alternatively, if there are ongoing costs, set them up as recurring expenses.
2. Model the Income Payout: Add a custom income stream to represent the regular payments you’ll receive from the annuity. Set this as a lifetime income with an annual increase to account for inflation if applicable.

This approach allows you to replicate both the cost and the income flow of a variable annuity within your financial plan. While it doesn’t fully capture all the complexities (such as market-based adjustments to payouts), it provides a functional approximation to reflect the annuity’s impact on your long-term financial goals.