Annuity Calculator

How to use the annuity calculator

An annuity is any series of equal payments made at regular intervals — pension income, a structured settlement, loan repayments or monthly savings. This calculator answers the three most common questions:

• Payout from lump sum — how much regular income a sum of money can pay over a set term before it runs out.
• Future value — what a series of regular payments will grow to.
• Present value — what a stream of future payments is worth as a lump sum today.

Enter the interest rate, the term, the payment frequency and whether payments happen at the end of each period (an ordinary annuity) or at the start (an annuity due). Rent and insurance premiums are typically annuities due; loan repayments and most pension payouts are ordinary annuities.

Annuity formulas

With periodic rate i (annual rate ÷ payments per year) and N payments:

For an annuity due, multiply PV and FV by (1 + i), or divide the payout by (1 + i), because each payment is shifted one period earlier.

Worked example

You retire with 300,000 and want it to pay a fixed monthly income for 20 years while the remaining balance earns 5% a year. The monthly rate is 0.05 ÷ 12 = 0.4167% and there are 240 payments. The annuity factor is [1 − 1.0041667⁻²⁴⁰] ÷ 0.0041667 ≈ 151.53, so the payout is 300,000 ÷ 151.53 ≈ 1,979.87 a month. Over 20 years you receive about 475,000 — the extra 175,000 is interest earned on the shrinking balance.

In future value mode, saving 500 a month for 20 years at 5% grows to about 205,500; in present value mode, receiving 500 a month for 20 years is worth about 75,800 today at the same rate.

Annuities as financial products

Insurance companies sell annuities that turn a lump sum into income. The main types are:

• Fixed-term (period certain) annuity — pays for a set number of years, as modelled here.
• Lifetime annuity — pays for as long as you live, however long that is. Because insurers pool longevity risk, payouts can be higher than you could safely withdraw yourself, but the money typically stops at death unless you buy a guarantee.
• Deferred annuity — you pay in now and income starts later.
• Inflation-linked annuity — income rises each year, but starts lower.

Commercial quotes depend on your age, health, interest rates and fees, so a real lifetime annuity quote will differ from this calculation. Use the result as a benchmark: if an insurer's fixed-term quote is much lower than this calculator at a comparable rate, ask why.

Tips

• Compare an annuity's income with a flexible withdrawal plan using the retirement calculator.
• Check the discount rate you use — a higher rate makes future payments worth less today. See the present value calculator for single sums.
• For loans, the payout formula is the same as a loan payment; see the loan calculator.

Results are mathematical estimates and are not a quote or financial advice.