Someone offered you a plan with guaranteed payouts. Put the same money into two options and see what each one is really worth once inflation is taken out.
Pick what each option does with your money. To compare fairly against a plan that pays you income, set the other side to withdraw the same amount.
Same money in, same number of years. Everything below comes from what each option does with it.
| Option A | Option B |
|---|
When the money reaches you, and what it can buy by then.
| Year | You pay | Option A | Option B | ||
|---|---|---|---|---|---|
| You get | Worth today | You get | Worth today | ||
Years are numbered the way a plan document numbers them. You pay at the start of a year, and anything the plan gives you arrives by the end of it, so the two are never mixed in the same column.
What it earns each year. One single yearly rate that ties together the money you hand over and every amount you get back. It counts when each amount arrives, not only how big it is. Money you get sooner is worth more than money you get later.
What it earns after prices rise. The same sum, done again after shrinking each amount by however much prices went up by the year it arrives. This is what your money can actually buy.
Why that isn't just the rate minus inflation. Inflation divides, it doesn't subtract. A plan paying 5% with prices rising 3.5% doesn't leave you 1.5%. Take 1.05, divide by 1.035, take away 1, and you get 1.45%. The shortcut is close at small numbers and drifts as they get bigger: at 12% with 6% inflation, subtracting says 6.00% when the real answer is 5.66%.
Worth in today's money. Every amount you get back, shrunk by the price rises between now and the year it lands, then added up. This is the fair way to compare two options, because money arriving early and money arriving late end up measured on the same day.
Costs. A single percent of annual charges on the compounding side moves the difference by tens of thousands over the term. Small numbers, large effect, because they come off every year.
They pay you every year, then give your money back. The rate is applied to the amount in the box at the top, and the same amount comes to you each year. Nothing builds up, because the money leaves. At the end you get back everything you paid in.
Paying for more than one year. Set the years box above to how many annual payments you make. Each one is counted in the year it leaves your hands, which is what makes a plan you pay into for two years comparable to one you pay for once. The yearly payout percentage is read as a percentage of one annual payment, because that is how these plans are usually written. Check yours, because a few quote it against the total instead.
You invest it and take money out each year. The pot grows by the rate, then you take out your amount, then it grows again on what is left. Whatever survives to the end is yours.
You invest it and leave it alone. The pot grows by the rate every year and you take nothing out, so this year's growth also earns next year.
Yearly fees. Taken off the rate before anything else. A plan's charges are usually already taken out before you see the number, so that side starts at 0.
Tax is not included, on either side. How each option is taxed depends on where you live and where you pay tax, and the answer is different for a life insurance contract than for a fund you hold directly. In some places that difference is large enough to change which option comes out ahead. This tool does not model it. Check your own situation with someone licensed where you are.
Life insurance. Shown on its own and kept out of the money comparison. It only pays if you die, which is a different question from what a plan is worth while you are alive.
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This is an educational tool, not financial advice. Free Before Sixty is a financial coaching practice. Jay Adrian Tolentino is a UAE SCA Registered Financial Influencer (#79) and a financial coach, not a licensed financial advisor. He does not sell financial products and earns no commissions. This tool does not name, endorse or evaluate any provider or product, and it does not tell you what to buy or avoid. It is a general calculator: the defaults it opens with were chosen by Jay as illustrative starting points, not as forecasts or recommendations, and every one of them is yours to change. Results depend entirely on the numbers you enter. Rates you type on the compounding side are assumptions, not contracts, and real markets do not deliver a smooth annual return. Every figure here is arithmetic on your inputs. Amounts carry no currency symbol, so the answer is the same whatever currency the plan is written in. Tax is not modelled on either side, and tax treatment can differ materially between an insurance contract and a directly held investment depending on your residence. Before acting on any financial product, read the full policy documents and speak to a licensed professional in your own jurisdiction.