Annuity Payout Calculator

An annuity payout converts a pile of money into a stream of regular payments. The pile can be an insurance contract you bought, a 401(k) or IRA balance you draw down yourself, a pension lump sum, or a legal settlement. The math is the same in every case: a starting balance, a rate of return earned on what is left, and a schedule of payments that gradually empties the account.

Period-certain vs. lifetime: A period-certain payout runs for a fixed number of years, say 20, and then stops. A lifetime annuity keeps paying for as long as you live, funded by an insurer that pools thousands of annuitants. This calculator models the period-certain case, which is also exactly how a self-managed drawdown works.

Immediate vs. deferred: An immediate annuity starts paying within a year of purchase. A deferred annuity grows for years first and starts paying later, typically at retirement. Enter the balance you will have on the day payments begin, not today's balance.

Fixed vs. variable: A fixed payout is a set dollar amount. A variable payout rises and falls with the investments inside the contract. The optional annual increase input models a fixed annuity with a cost-of-living rider, which starts lower and grows each year.

The payment that exactly exhausts a balance over a set term is the same formula banks use for a loan payment, run in reverse. You are the bank; the annuity is lending your money back to you.

Payment = Balance × r ÷ (1 − (1 + r)⁻ⁿ), where r is the return per period and n is the number of periods.

Worked example: $500,000 earning 5% a year, paid monthly for 20 years. The monthly rate is 0.4167% and there are 240 payments. The formula gives $3,300 a month. Over the full term you receive $791,947, of which $291,947 is interest earned on the shrinking balance and $500,000 is your original money.

Notice that the balance keeps earning for the whole term. In year one the account earns about $24,700 of interest while paying out $39,600, so it shrinks only about $14,900. By year 20 almost every payment is principal. The year-by-year table in the calculator shows this crossover.

The 4% rule says withdraw 4% of your balance in year one, raise it with inflation each year, and a diversified portfolio will very likely last 30 years or more. On $500,000 that is $20,000 a year, about $1,670 a month, with the principal still invested and available to heirs or for emergencies.

Annuitizing the same $500,000 over 20 years at 5% pays $3,300 a month, almost double. The catch is that at the end of the term the money is gone, and inflation has quietly cut the purchasing power of a level payment by roughly 45% over 20 years at 3% inflation.

• Choose a higher payout when you need to cover fixed expenses that Social Security and pensions do not, and leaving an inheritance is not a priority.
• Choose the 4% rule when you want flexibility, expect to live a long time, or want the balance to pass to heirs.
• Do both by annuitizing only the amount needed to close the gap between guaranteed income and essential expenses, then investing the rest.

It makes sense when you have no pension, your essential expenses exceed Social Security, you are in good health with longevity in the family, and the idea of managing withdrawals through a market crash keeps you up at night. A simple single-premium immediate annuity from a highly rated insurer is the cleanest version.

It does not make sense when the contract carries surrender charges of 5-10% for the first 7-10 years, annual fees above 1%, or riders you do not understand. Variable and indexed annuities are where most of the bad outcomes happen. Also avoid annuitizing money you may need for a large expense, because the decision is irreversible.

Inflation risk is the quiet danger. A level $3,300 payment buys what $1,830 buys today after 20 years of 3% inflation. Either buy an inflation-adjusted contract, keep a growth portfolio alongside the annuity, or ladder purchases over several years so later contracts start at higher payments. If you are choosing between a pension's monthly annuity and its lump sum, the pension lump sum vs. annuity guide walks through that decision.