Annuity Calculator
Calculate annuity payments from a lump sum, or find how much you need to invest for a desired income.
Periodic Payment
$0
Total Paid Out
$0
Total Interest Earned
$0
How Annuity Payments Are Calculated
An annuity is a financial contract that converts a lump sum into a stream of regular payments over a specified period. Annuities are widely used for retirement planning, structured settlements, and guaranteed income strategies. This calculator uses the standard present value of an ordinary annuity formula to compute payments.
The Annuity Payment Formula
The periodic payment is calculated as PMT = PV × r / (1 - (1 + r)-n), where PV is the present value (your lump sum), r is the periodic interest rate (annual rate divided by payment frequency), and n is the total number of payments (years multiplied by payment frequency). This formula ensures the lump sum is fully exhausted by the end of the payout period, with each payment covering both principal repayment and interest.
Two Ways to Use This Calculator
In "How much will I receive?" mode, you enter your available lump sum and the calculator tells you what periodic payment you can expect. In "How much do I need?" mode, you enter your desired payment amount and the calculator determines the lump sum required to fund those payments. Both modes account for interest compounding at your chosen frequency — monthly payments produce smaller individual amounts but more total payments than annual ones. The total interest earned represents the difference between total payments received and the original investment, showing how much your money works for you during the payout phase.
Disclaimer: This calculator is for informational purposes only and does not constitute financial, tax, or legal advice. Always consult a qualified professional for decisions specific to your situation.
Frequently Asked Questions
What is an annuity?
An annuity is a financial product that provides a series of regular payments over a specified period or for life, in exchange for an upfront lump sum investment. Annuities are commonly used for retirement income, offered by insurance companies, and can be immediate (payments start right away) or deferred (payments start at a future date).
What is the difference between fixed and variable annuities?
A fixed annuity guarantees a set interest rate and predictable payments, making it low-risk. A variable annuity ties payments to the performance of underlying investments (like mutual funds), offering higher growth potential but also higher risk. Fixed indexed annuities offer a middle ground, linking returns to a market index with a guaranteed minimum.
Should I take an annuity or a lump sum?
An annuity provides guaranteed income for life, protecting against longevity risk. A lump sum gives you full control and potentially higher returns if invested wisely. The best choice depends on your health, other income sources, risk tolerance, and whether you need income certainty. Many retirees use a combination: annuitize enough for essential expenses and invest the rest.
How are annuity payments taxed?
Taxation depends on how the annuity was funded. If purchased with pre-tax money (e.g., from a 401k or traditional IRA), all payments are taxed as ordinary income. If purchased with after-tax money, only the earnings portion is taxed — your original investment is returned tax-free over the payment period using an exclusion ratio.