Annuity Calculator

An annuity is a series of equal payments made at regular intervals. In everyday use it is an insurance contract: you pay a lump sum or a series of payments, and the insurer agrees to pay you income starting right away or at a later date. This calculator works out the fixed-term arithmetic behind it, with one assumed interest rate for the whole term.

It depends on the interest rate and the number of years. At 5% with monthly payments, $100,000 pays $659.96 a month for 20 years, $1,060.66 for 10 years or $536.82 for 30 years. The 20-year payments add up to $158,389.38, of which $58,389.38 is interest. A lifetime annuity from an insurer also depends on your age and sex, so only the insurer can quote it.

At 5% over 20 years, $600000 pays $3,959.73 a month, exactly six times the payment on $100,000. Over 10 years it pays $6,363.93 a month and over 30 years $3,220.93. At 4% the 20-year payment is $3,635.88. The payment grows in step with the lump sum, so you can scale any result: half the money pays half as much.

At 5% over 20 years, $250000 pays $1,649.89 a month, or $395,973.44 in all. Over 10 years it pays $2,651.64 a month and over 30 years $1,342.05. The rate matters: at 3% the 20-year payment is $1,386.49 and at 7% it is $1,938.25. Payments at the start of each month instead of the end are slightly smaller, $1,643.04.

To receive $1000 a month for 20 years at a 5% rate, you need a lump sum of $151,525.31 today. For 30 years it is $186,281.62 and for 10 years $94,281.35. A higher rate lowers the amount, because the money earns more while it pays out: $165,021.86 at 4% and $139,580.77 at 6% for 20 years. Choose "Lump sum needed" to try your own payment and term.

This calculator uses six: the lump sum, the interest rate, the number of years, how often you are paid, whether payments come at the start or the end of each period, and any years of deferral. A real quote also depends on the insurer’s pricing and interest rates and, for a lifetime annuity, on your age, sex and options such as joint-life payments or a guaranteed period. Fees reduce the payout too.

An immediate annuity starts paying soon after you buy it, typically within one year. With a deferred annuity you pay in a lump sum or over time, the money grows during an accumulation phase, and the income starts later. In the calculator, 0 years of deferral is an immediate annuity. A 10-year deferral lets $250,000 at 5% grow to $411,752.37 first, which lifts the 20-year payment from $1,649.89 to $2,717.38 a month.

It can, if you want income you cannot outspend. A lifetime annuity pays as long as you live, which passes the risk of outliving your savings to an insurer. The costs: you give up access to the lump sum, early withdrawals can bring surrender charges, fees reduce the value, and level payments lose buying power to inflation. The insurer’s promise is only as good as its financial strength. Weigh it against your other income and talk to a financial professional before you buy.

The risk is outliving your savings, called longevity risk. A fixed-term payout ends when its term ends: $250,000 at 5% pays $1,649.89 a month for 20 years and then nothing, so money set aside at 65 would be gone at 85. A 30-year term lowers the payment to $1,342.05. Inflation is a second risk: after 20 years of 3% inflation, a level $1,649.89 payment buys what $913.50 buys today. A lifetime annuity pays as long as you live.

An ordinary annuity pays at the end of each period, an annuity due at the start. Because an annuity due pays one period sooner, its present value and future value are (1 + i) times as large, with i the rate per period. For $1,000 a month over 20 years at 5%, the lump sum needed is $151,525.31 with payments at the end of each month and $152,156.67 with payments at the start. Rent is usually paid at the start of the period, loan payments at the end.

PV = PMT × (1 − (1 + i)^−n) / i, where PMT is the payment, i the interest rate per period and n the number of payments. For $1,000 a month over 20 years at 5%, i = 0.05 / 12 and n = 240, so PV = 1,000 × 151.525313 = $151,525.31. Multiply by (1 + i) for an annuity due. Solving the same equation for PMT gives the payout formula, PMT = PV × i / (1 − (1 + i)^−n).

Use FV = PMT × ((1 + i)^n − 1) / i for the deposits, and add the starting balance times (1 + i)^n if you already have savings. $500 a month at 7% for 30 years grows to $609,985.50, of which $180,000 is your own money. Choose "Growth" to enter a starting balance, regular deposits, a rate and a term, and to see the value for other terms in the table.

Payments are partly a return of your own money and partly income. For an annuity bought with after-tax money, the IRS General Rule treats a share of each payment as a tax-free return of your cost, and the rest is taxable. If you paid $100,000 for 240 monthly payments of $659.96, the exclusion percentage is $100,000 / $158,390.40 = 0.631 (rounded to three decimals, as Publication 939 requires), so 0.631 × $659.96 = $416.43 of each payment is a return of cost and $243.53 is taxable. Payments from a qualified plan such as a 401(k) mostly use the Simplified Method, and payments before age 59½ may add a 10% tax. Ask a tax professional.

Compare them as present values. Enter the payment, the number of years and the rate you could earn on the lump sum yourself, then read the lump sum needed. If the lump sum you are offered is larger than that, taking it is worth more at that rate; if it is smaller, the payments are worth more. A higher assumed rate favors the lump sum. Taxes, inflation and how long you live belong in the decision too. Payments that rise every year, as in lottery annuities, are not level, so this calculator cannot price them exactly.

No. A life annuity depends on your age, sex, the insurer’s pricing, current interest rates and the options you choose, such as joint-life payments or a guaranteed period, and a fixed-term formula contains none of them. This calculator shows what a lump sum can pay over a set number of years at a rate you assume, a useful yardstick when you compare quotes. Ask several insurers for quotes and check their financial strength.

Use the rate you expect the money to earn. For an insurer’s fixed annuity, that is the rate its contract credits. To compare with your own savings, use a yield you can actually get, such as a CD or Treasury rate. A hoped-for stock market return is not a guaranteed rate. Try a low and a high case: $250,000 over 20 years pays $1,386.49 a month at 3% and $1,938.25 at 7%.

Many deferred annuities charge a surrender charge if you withdraw money within a set number of years of buying them, and variable annuities add ongoing fees. Fees reduce the value of an annuity whether the insurer deducts them or builds them into the interest it credits. Withdrawals before age 59½ may also bring a 10% tax on top of income tax. This calculator leaves all of that out, so lower the rate or the payment to allow for costs. State law usually gives 10 to 30 days to cancel after you receive the contract.

More years give the money more time to earn interest before the payments start, so the payment is larger. At 5%, $250,000 paid out over 20 years pays $1,649.89 a month if it starts now, $2,117.40 if it starts in 5 years and $2,717.38 if it starts in 10 years. The price is waiting. Set the deferral period to the number of years until the payments start.

A little. The less often you are paid, the longer the money stays invested, so each payment is bigger and the total is higher. For $250,000 at 5% over 20 years, 240 monthly payments of $1,649.89 add up to $395,973.44, 80 quarterly payments of $4,961.63 to $396,930.48 and 20 yearly payments of $20,060.65 to $401,212.94. Choose the frequency that matches how you are paid.

A fixed annuity guarantees both a minimum rate of return and the payout, and it can be immediate or deferred. In a deferred fixed annuity the insurer guarantees at least a minimum interest rate while the money accumulates, sets the rate it credits and may credit more than the minimum. Variable annuities invest in funds and carry market risk, and indexed annuities credit interest based on an index with limits on gains. Because this calculator uses one fixed rate for the whole term, it fits a fixed annuity or any level-payment plan best.