1. What is P/E Annuity?

The Price to Earnings (P/E) ratio for an annuity compares the premium paid for the annuity to its annual payout. It helps evaluate how many years of payouts are needed to recoup the initial investment.

2. How Does the Calculator Work?

The calculator uses the P/E Annuity formula:

Where:

• \( Premium \) — Initial lump sum payment for the annuity (USD)
• \( Annual\ Payout \) — Yearly payment received from the annuity (USD)

Explanation: The ratio shows how many years of annual payments are needed to recover the initial premium amount.

3. Importance of P/E Annuity

Details: This metric helps compare different annuity products and assess their value. A lower P/E Annuity indicates a better value as it takes fewer years to recoup the initial investment.

4. Using the Calculator

Tips: Enter the premium amount in USD and the annual payout amount in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good P/E Annuity ratio?
A: Generally, lower ratios (10-15) are better, but this depends on interest rates and life expectancy.

Q2: How does this differ from stock P/E ratio?
A: While conceptually similar, annuity P/E is based on contractual payments rather than company earnings.

Q3: Should inflation be considered?
A: For fixed annuities, yes. This calculation assumes nominal dollars unless using inflation-adjusted payout amounts.

Q4: Does this account for mortality?
A: No, this simple calculation doesn't consider life expectancy or mortality credits.

Q5: Can this be used for variable annuities?
A: Only if the annual payout is fixed or you use an estimated average payout.