Calculator
Annuity calculator
Three questions: what monthly income a lump sum buys, what a deferred annuity grows to, and how long a balance lasts.
Monthly payout for 25 years$1,445.35$433,604 paid in total
| Lump sum | $250,000 |
|---|---|
| Interest rate | 5% a year |
| Payments | 300 monthly |
| Total paid out | $433,604 |
| Interest included | $183,604 |
| Monthly payment | $1,445.35 |
A period-certain payout: the money is used up at the end of the term. A life annuity from an insurer prices in mortality and expenses, so its payout differs; compare quotes with this as a baseline.
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How the annuity calculator works
An annuity is a series of equal (or steadily rising) payments, and the annuity calculator uses the standard present-value formula to find the payment a lump sum supports at a given interest rate. With a monthly rate r and n monthly payments:
payment = lump sum × r ÷ (1 − (1 + r)−n)
The rate you enter is an effective annual rate, converted to a monthly rate as (1 + annual)1/12 − 1; at 5% a year that is 0.4074% a month. For rising payments the calculator finds the first-year payment that, growing by your percentage each January, uses up exactly the lump sum over the term. Growth mode compounds a deposit and monthly additions; "how long it lasts" subtracts each withdrawal at the start of the month and adds interest on the rest.
Monthly annuity payout per $100,000
The payout on $100,000 rises with the interest rate and falls with the length of the term. A level, period-certain payout pays:
| Interest rate | 10 years | 15 years | 20 years | 25 years | 30 years |
|---|---|---|---|---|---|
| 3% | $964 | $689 | $553 | $472 | $419 |
| 4% | $1,009 | $736 | $602 | $524 | $473 |
| 5% | $1,055 | $785 | $654 | $578 | $530 |
| 6% | $1,102 | $835 | $707 | $635 | $589 |
| 7% | $1,150 | $887 | $762 | $693 | $651 |
A life annuity from an insurer is priced on the same arithmetic plus mortality (how long the buyer is expected to live) and the insurer's costs, so quotes differ from this table. Use the table as a baseline: it shows what the same money would pay over a fixed number of years with no insurance against living longer.
Worked examples
- Payout. $250,000 at 5% for 25 years: r = 0.4074% and n = 300, so the payment is $1,445.35. Over 25 years that is $433,604, of which $183,604 is interest.
- Payout rising 2% a year. The first year pays $1,185.43 a month; by year 25 the payment is $1,906.69.
- Growth. $100,000 plus $500 a month for 10 years at 4.5% grows to $230,535, of which $70,535 is interest.
- How long it lasts. $300,000 paying $2,000 a month at 5% runs out after about 19 years and 2 months.
How annuity income is taxed
Payments are fully taxable if you have no cost in the contract, as with annuities bought inside a traditional IRA or paid from a pre-tax plan[p575]. If you bought the annuity with after-tax money, part of each payment is a tax-free return of your cost: plans use the Simplified Method, and nonqualified annuities use the General Rule[p939]. An annuity held in an IRA is also subject to required minimum distribution rules from 73 or 75[p590b]; see the RMD calculator.
Common mistakes
- Confusing payout rate with return. A 7% payout over 20 years returns your own principal plus interest; the interest rate behind it is much lower.
- Ignoring inflation. A level $1,445.35 buys about 40% less after 25 years at 2% inflation. The rising-payment option shows the cost of protection.
- Leaving out fees and surrender charges. This calculator uses the rate you enter after costs; compare offers on the same basis.
- Comparing with Social Security incorrectly. Social Security is an inflation-adjusted life annuity; delaying it is often compared with buying one. See the break-even calculator and the Social Security calculator.
Have a pension offer?To compare a pension's monthly amount with a lump sum, use the pension calculator, which finds the return the lump sum must earn to match the payments. To test a whole retirement plan, try the early retirement calculator.
Frequently asked questions
How much does a $100,000 annuity pay per month?
Over 20 years at 5%, about $654 a month; over 30 years, about $530. A lifetime annuity from an insurer depends on your age and the insurer's pricing.
How is an annuity payment calculated?
Payment = principal × r ÷ (1 − (1 + r)−n), where r is the interest rate per period and n is the number of payments. The annuity calculator converts your annual rate to a monthly rate and solves this formula.
How long will my money last with monthly withdrawals?
Use the "how long it lasts" mode. For example, $300,000 at 5% with $2,000 withdrawn each month lasts about 19 years; at $1,200 a month the interest covers the withdrawals and it never runs out.
Are annuity payments taxable?
Payments from a pre-tax account or a contract with no after-tax cost are fully taxable. If you paid with after-tax money, part of each payment is a tax-free return of cost under IRS rules.