This calculator can estimate the annuity payout amount for a fixed payout length, or estimate the length that an annuity can last if supplied a fixed payout amount. All calculations are performed instantly in your browser — no data is sent to any server.
An annuity payout calculator is a financial tool that helps you determine how much money you will receive from an annuity over a specified period, or alternatively, how long a lump sum of money will last when you withdraw a fixed amount on a regular basis. Annuities are financial products typically offered by insurance companies that are designed to provide a steady stream of income, usually during retirement.
This calculator supports two of the most common payout options: Fixed Length (also known as fixed period or period certain) and Fixed Payment Amount. Both are widely used in retirement planning and can help you make informed decisions about your financial future.
This calculator uses the standard time value of money formulas for an annuity. An annuity is a series of equal payments made at regular intervals. The two main types are:
The formula used for the Fixed Length calculation is:
Where:
For the Fixed Payment calculation, the number of periods is solved using:
A fixed-length payout option, also known as fixed-period or period certain payout, allows annuitants to select a specific time period over which the annuity payments are guaranteed to last. For example, an annuitant aged 60 who selects a 10-year period certain payout will be guaranteed payments until around age 70. Fixed length payouts are usually paid in monthly installments over a chosen time period, such as 10, 15, or 20 years.
It is very possible to choose too short or too long a fixed length for an annuity. If the main annuitant dies with funds left, any remaining amount will be passed to their heirs. This payout option is not affected by how long the main annuitant lives.
A fixed payment amount payout option allows annuitants to select the amount they will receive in each monthly payment. These payments will continue until the annuity's balance is depleted. As the calculator shows, the duration of the payments depends on the amount chosen and the annuity's accumulated value at the time of annuitization.
The fixed payment amount option shares the same risk as the fixed-length payout option; it is possible to choose too small or too large a fixed monthly payment amount, resulting in the retiree either outliving the annuity or dying with money remaining in the account. It is up to each individual to consider their situation to determine which option to choose, as there are different risks associated with all of them.
In the U.S., a tax-qualified annuity is one used for qualified, tax-advantaged retirement plans such as an IRA or 401(k). Less common qualified retirement plans include defined benefit pension plans, 403(b)s, Keogh Plans, Thrift Savings Plans (TSPs), and Simplified Employee Pensions (SEPs). Contributions to qualified annuities are generally paid with pretax money, and are not included in taxable income for the year in which they are paid. This means that contributions during a tax year can be deductible, lowering taxable income. However, the eventual distributions during a future tax year are subject to ordinary income taxes.
These annuities are purchased with after-tax dollars. In other words, the only portion of a non-qualified annuity policy that is eligible for taxation is the earnings, which are taxed as ordinary income. A big distinction to make is that, unlike qualified annuities, non-qualified annuities are not subject to minimum distribution rules after the age of 72. There is no limit on the amount of non-qualified money that can be placed into an annuity or the number of annuities that can be purchased.
Withdrawals from an annuity before the age of 59½ will result in a 10% early withdrawal penalty on top of regular income tax. For all types of annuities, earnings are not taxable until the money is withdrawn. Because withdrawals are taxed on a "last in, first out" (LIFO) basis for a non-qualified annuity purchased after Aug. 13, 1982, earnings are paid out before principal.
With that said, however, there are exceptions. Most annuity contracts allow the withdrawal of a portion of the account value each year without incurring a surrender charge. Other annuity contracts may allow the withdrawal of the gains (not principal) from an annuity without penalty. Also, as retirement accounts, annuities allow early withdrawals without penalty under certain situations, such as disability, major medical emergency, or terminal illness diagnosis.
The accumulation phase is the first stage during which an annuity builds up cash value utilizing gathered funds. It always comes first and begins after an initial investment is made. Funds can come in the form of one lump sum or a series of payments. A lump sum is more commonly chosen by investors close to or already in retirement in order to start the annuitization and payout phase as quickly as possible. This allows them to start receiving distributions that are usually guaranteed for life right away. Also called "immediate annuities" because their distribution is almost immediate, they have very short accumulation phases as a result. On the other hand, a series of payments might be more beneficial for younger investors who want to grow wealth over time in order to have future income in retirement.
The annuitization phase is more of a single, immediate event rather than a phase, acting as a separation between the accumulation and payout phases. It represents the point at which the insurance company stops receiving payments from the investor in preparation to return the accumulated assets as periodic payments to the annuitant. In other words, the annuity is "annuitized." The decision to annuitize is final, and once made, it is not possible to request a different form of payout or access the principal.
Sometimes referred to as the distribution phase, this is the final phase of an annuity, which can be calculated by this Annuity Payout Calculator. This is the phase in which the insurance company distributes payments to the investor. The length of the phase can vary widely, depending on various factors such as the payout amount and the total value accrued during the accumulation phase. Payments can be distributed over a specific period of time: monthly, quarterly, semiannually, or annually. It is important to note that regardless of which option is chosen, once applied, the choice is irrevocable.
There are several options for choosing how annuity payouts occur, and not all annuities offer every payout option. This calculator focuses on the two most common: fixed length and fixed payment amount.
The lump-sum payment option allows annuitants to withdraw the entire account value of an annuity in a single withdrawal. This can be useful in many cases where the entire value of the account is desired immediately. A penalty will not be incurred as long as this is done after the age of 59½. However, income taxes may apply to the year of withdrawal.
For this option, the insurance company makes payments to the annuitant for as long as they live. Calculated life expectancy will determine the payment amount. The longer the life expectancy, the smaller the payment amount. A drawback to this option is that it is not possible to choose the payment amount, and there is no guarantee that the annuitant will receive the total value of their annuity.
This option ensures that retirement income provided by an annuity will continue for a spouse in the case of the death of the main annuitant. Payments are calculated based on the life expectancy of the main annuitant and their spouse. Due to this, payments under this option will generally be lower than the life-only option. Payments will cease upon the death of the second annuitant.
This option combines features of the fixed length and life-only options. It guarantees an income for life but also allows the annuitant to select a specific time period during which the annuity pays a designated beneficiary, such as 10 years, even in the case of death before the guaranteed period ends.
Suppose you have a starting principal of $500,000, an annual interest/return rate of 6%, and you want the annuity to pay out over 10 years with monthly payments. The calculator will determine that you can withdraw approximately $5,511.20 per month. Over the 10-year period, you would receive a total of $661,344.16, of which $161,344.16 comes from interest earned.
Alternatively, if you want to receive $5,000 per month instead, the calculator will determine approximately how long the annuity will last, which will be slightly more than 10 years.
Both provide retirement income, but a pension is typically employer-funded and defined by your salary and years of service, while an annuity is a contract you purchase from an insurance company, with payouts based on your contributions and the terms of the contract.
No. Once you annuitize, the decision is generally irrevocable. You cannot change the payout option or access the principal afterwards.
It depends on whether the annuity is qualified or non-qualified. Qualified annuity payouts are generally fully taxable as ordinary income. For non-qualified annuities, only the earnings portion is taxable; the principal portion is tax-free.
It depends on the payout option you selected. With a fixed-length (period certain) annuity, remaining payments go to your beneficiaries. With a life-only annuity, payments cease upon your death and no further benefits are paid.
No. The calculator uses a nominal interest rate and does not adjust for inflation. To estimate real returns, you can subtract the expected inflation rate from the interest rate before entering it.
This calculator is provided for educational and informational purposes only. It does not constitute financial, tax, or legal advice. Annuity products are complex and vary widely by provider and contract. Always consult a qualified financial advisor before making any decisions regarding annuities or retirement planning. ToolShed is not responsible for any decisions made based on the results of this calculator.