Investment & Planning

Annuity Calculator

Free annuity calculator for retirement income and savings: turn a lump sum into monthly or annual payouts, solve the return a target income needs, size the contributions a savings goal requires, and compare ordinary with due timing.

Did this calculator help you?

What is Annuity Calculator?

An annuity is one idea read in two directions: a balance becomes a stream of payments, or a stream of payments becomes a balance. Fund 500,000 at a 5% return over 20 years paid monthly and the balance pays 3,299.78 every month — 39,597.34 a year, a 7.92% payout rate on the original sum. Reverse the question and the same factor answers it: 2,500 a month from that balance needs only a 1.88% return, while at 0% the money stretches to just 2,083.33 a month over 240 payments, so anything between those two figures is achievable and the calculator solves for the exact rate. The same mathematics sizes savings goals — 250,000 in 20 years at 5% costs 608.22 a month, of which 104,026.56 is growth — and values payment streams, where 2,500 a month for 20 years is worth 378,813.28 today. Three further choices change the answer materially: paying at the start of each period instead of the end, escalating payments with inflation, and the frequency you draw. Annuities power pensions, structured settlements and retirement drawdown because they turn an uncertain lifetime into a fixed schedule; this calculator makes every step of that schedule visible.

When to Use This Calculator

  • When a retirement account balance must become a monthly paycheck and you need the number before choosing an insurer.
  • When an insurer quotes a payment and you want the return their quote implies.
  • When a savings goal has a date and you need the monthly contribution that reaches it.
  • When two offers differ only in rate, term or timing and you want them on the same scale.
  • When a gift or inheritance can be paid as a lump sum or as a fixed stream and the comparison has to be in today's money.
  • When payments must rise with inflation and a level stream would quietly lose purchasing power.

Steps:

  1. Choose a mode: payout spends a lump sum into income, saving solves the payment a target needs, and value prices a payment stream.
  2. Enter the amount the mode asks for — lump sum, target future value, or payment — then set the return rate and the term in years.
  3. Set the payment frequency: monthly, quarterly, semi-annual or annual. The annual rate is divided by the number of payments a year, so frequency changes the answer.
  4. Pick the timing. Ordinary pays at the end of each period, due at the start — due payments arrive earlier and therefore pay slightly less for the same balance.
  5. In payout mode toggle to Rate to solve the reverse question: what return turns this balance into a target income.
  6. Open advanced options to add payment growth for inflation-linked pensions or escalating drawdowns.
  7. Read the breakdown and the sensitivity grid: the grid re-solves the payment across terms and rates so the shape of the trade-off is visible at once.
  8. Step through the solution, check the schedule table, then export or print the figures you want to keep.

Formula

PMT = PV ÷ F F = (1 − (1 + i)^−n) ÷ i F = (1 − u^n) ÷ (i − g), where u = (1 + g) ÷ (1 + i) PV due = PV ordinary × (1 + i) PMT due = PMT ordinary ÷ (1 + i) FV = PV × (1 + i)^n Required PMT = FV ÷ (F × (1 + i)^n) i = annual rate ÷ periods per year; n = years × periods per year

Use Cases

  • Retiring with 500,000 saved and wanting to know what monthly income it supports at a 5% assumed return.
  • Comparing a life insurer's quoted pension payment against the arithmetic your own lump sum implies.
  • Deciding how much to contribute each month to reach a 250,000 target before a planned date.
  • Testing whether a desired 4,000 a month is achievable, and if so what return the plan must earn.
  • Pricing an inheritance that pays 2,000 a month for a fixed term, to compare against a lump-sum gift.
  • Checking what an escalating pension starting at 3,000 a month costs in present-value terms.

Key Benefits

  • Three annuity questions in one tool — income from a balance, savings to a target, and the value of a payment stream — all sharing one factor.
  • A true rate solver: ask for an income and get the exact return required, with the 0% floor and 100% ceiling shown so you know the target is reachable before you trust it.
  • Growing payments built in, so pensions that escalate with inflation are priced correctly rather than approximated with a flat stream.
  • Timing and frequency controls that reflect how contracts actually pay — ordinary or due, monthly through annual.
  • A schedule table and chart for every period, with the balance winding down to zero or compounding up to the target.
  • Sensitivity grids that re-solve across terms and rates, turning a single answer into a map of the trade-off.

Pro Tips

  • Solve for rate first when comparing quotes: if the required return looks unrealistic, the quote is doing the work.
  • Run the 0% floor past yourself — lump sum divided by the number of payments — before accepting any projected income.
  • Use the growth input with a realistic inflation figure rather than assuming the pension will be indexed for free.
  • Push the term in the sensitivity grid: five extra years of drawdown usually buys more than half a point of return.
  • Check the schedule's final rows: a payout plan should land on zero exactly, and an accumulation plan on your target.
  • Compare due against ordinary when the contract pays in advance — the difference on the defaults is 13.69 a month.

Common Mistakes to Avoid

  • Quoting a payout rate without the term. The 7.92% figure assumes 20 years; extend the term and the payment falls, shorten it and the payment rises.
  • Treating the payout rate as a return. It is income divided by balance — 7.92% income at a 5% assumed return — because every payment returns capital as well as interest.
  • Solving for income only. The reverse question, what return does this income need, is the one that reveals whether an insurer's quote is realistic.
  • Ignoring inflation on level payments. A flat 3,299.78 loses purchasing power every year; 2.5% escalation cuts the first payment to 2,653.77 but protects the whole stream.
  • Mixing ordinary and due timing without noticing the value difference — due payments arrive earlier and pay less for the same balance.
  • Setting the target income above the ceiling. Even at a 100% return the default balance cannot pay more than 41,666.67 a month, so a higher target reports above maximum rather than as an error.

Key Terms Explained

Annuity factor:
the present value of 1 a period for n periods — 151.5253 on the defaults — that converts a balance into a payment with one division.
Payout rate:
annual income divided by the lump sum, times 100 — 7.92% on the defaults — showing how much of the balance is spent each year.
Ordinary annuity:
payments at the end of each period — the default, and the timing behind the standard factor formula.
Annuity due:
payments at the start of each period — each payment arrives earlier, so the same balance pays slightly less.
Growing annuity:
payments that rise by a fixed percentage each year, valued with the factor that nets the growth rate against the return.
Present value:
what a future stream of payments is worth today — 378,813.28 for 2,500 a month over 20 years at 5%.
Future value:
what a stream reaches by the end of the term — 1,027,584.17 for the same payments compounded for 20 years.
Minimum income:
what the balance pays at a 0% return — simple division, the floor every target must clear.

Related Concepts

Example

Take the page as it opens: a 500,000 lump sum, a 5% return, 20 years, monthly payments in ordinary timing. The annuity factor is 151.5253, so the balance pays 500,000 ÷ 151.5253 = 3,299.78 a month, or 39,597.34 a year — a 7.92% payout rate. Over 240 payments the plan pays 791,946.89 in total, of which 291,946.89, or 58.39% of the original balance, is earnings. Switch the solve toggle to Rate and target 2,500 a month: the calculator returns 1.88% a year (0.156% a month), comfortably between the 0% floor of 2,083.33 and the 100% ceiling of 41,666.67. Ask instead for 1,000 a month and it reports below minimum — no return, not even 0%, makes 500,000 pay that little over the term, because dividing by 240 payments already requires 2,083.33. Now press the pension preset: 750,000 at 4% with 2.5% annual escalation over 25 years opens at 3,004.67 a month, with a 4.81% first-year payout rate, trading a lower first payment for payments that keep pace with prices. The savings preset asks the mirror question: reaching 250,000 in 15 years at 6% costs 859.64 a month, 10,315.70 a year, 154,735.57 contributed in all, leaving 38.11% of the target as growth. The escalate preset prices the other direction: 1,000 a month starting at the beginning of each period, rising 2% a year for 10 years at 5%, is worth 103,845 today and 171,033.71 at maturity.

Interpreting Your Results

Read the page left to right, top to bottom. The four preset chips load complete scenarios — lump-sum income, escalating pension, savings target and escalating due stream — and the mode tabs choose the direction of the calculation. In payout mode a second row of tabs toggles between solving for income and solving for rate; the hero shows the payment, coloured green up to an 8% payout rate, amber to 10% and red above. Beneath it four cards give the annual income, the payout rate, the total paid over the term and the income earned above the balance. The breakdown repeats every figure including frequency, timing and growth, and the schedule shows each period's payment, interest credited, remaining balance and running total — the balance should reach zero in the final row. In solve mode the cards replace income with the required return, the floor and the ceiling, and the verdict card reports whether the target is achievable. The sensitivity grid re-solves the calculation across terms down the side and rates across the top, or target incomes in solve mode, with your current settings highlighted. The step-by-step panel then reproduces the arithmetic — factor, payment, annual total — so every number on screen can be checked by hand, and the methodology card lists the four formulas with the assumptions in force.

Frequently Asked Questions

What is an annuity calculator?
An annuity calculator converts between a lump sum and a stream of payments using the annuity factor. Enter a balance, a return rate and a term, and it solves the payment the balance supports; enter a target payment and it solves the balance — or the rate — required instead. The defaults show both directions at once: 500,000 at 5% over 20 years paid monthly pays 3,299.78 a month, while asking for 2,500 a month from the same balance requires only a 1.88% return. Because the factor is shared, the same tool also sizes savings contributions and prices payment streams, which is why payout, saving and valuation modes all live on one page rather than in three separate calculators.
What is the difference between ordinary and due annuity?
An ordinary annuity pays at the end of each period; an annuity due pays at the beginning. The difference compounds through every payment: because due payments arrive a full period earlier, each one earns less interest in the balance, so the same lump sum supports a slightly smaller payment. On the defaults the ordinary stream pays 3,299.78 a month and the due stream 3,286.09 — 13.69 less, or 0.41%. Contracts that bill or pay in advance, rentals and some insurance premiums are due annuities; pensions and loans are usually ordinary. The calculator applies the adjustment exactly by multiplying the ordinary present value by one period's interest factor rather than approximating it, and the schedule table shows the effect period by period.
What payout rate should I expect from an annuity?
The payout rate is annual income divided by the lump sum. On the defaults 39,597.34 a year from 500,000 gives 7.92%. It moves mainly with the return assumption and the term: at 3% the same balance pays 6.66%, at 6% it pays 8.60%, and at 8% it reaches 10.04% — above which the calculator warns that the balance is being spent quickly. Shortening the term raises the payout rate too, because the money has fewer years to last. Treat the payout rate as an income ratio rather than a yield: part of every payment is your own capital returning, which is exactly why the defaults show income earned of 291,946.89 against total payments of 791,946.89 over the 20-year term.
How do I calculate the payment a lump sum produces?
Divide the lump sum by the annuity factor. The factor is the present value of 1 a period: for ordinary payments at rate i over n periods it is (1 − (1 + i)^−n) ÷ i, which on the defaults — 5% a year, 240 monthly periods — equals 151.5253. So 500,000 ÷ 151.5253 = 3,299.78 a month. If payments grow each year, the growing factor (1 − u^n) ÷ (i − g) with u = (1 + g) ÷ (1 + i) replaces it; at 2.5% growth the first payment on the default balance falls to 2,653.77. The step-by-step panel on this page shows the factor, the division and the annual total for whatever inputs you set, so the whole calculation can be repeated with a pencil.
How much do I need to save to reach a target?
Divide the target future value by the annuity factor and by one period's growth compounding. Reaching 250,000 in 20 years at 5% with monthly ordinary contributions needs 608.22 a payment, or 7,298.67 a year — 145,973.44 contributed in total, leaving 104,026.56, or 41.61% of the target, as investment growth. Shorten the horizon or lower the return and the required payment climbs steeply; the savings preset shows the same target reached in 15 years at 6% for 859.64 a month, which costs more in total but finishes five years sooner. Enter your own target in accumulate mode and the calculator solves the payment, prints the annual contribution, and schedules every deposit through to the finish.
What return does my annuity need to pay a target income?
Switch payout mode to the rate solver and enter the income you want. The calculator brackets the answer between two hard bounds — the 0% floor, where the balance simply divides by the number of payments, and the 100% ceiling — then bisects for the exact rate. For 500,000 paying 2,500 a month over 20 years the answer is 1.88% a year, or 0.156% a month, against a floor of 2,083.33 and a ceiling of 41,666.67. A target below the floor, such as 1,000 a month, reports below minimum because no return can stretch the money that thin; a target above the ceiling reports above maximum. This is the fastest way to test whether an insurer's quoted payment implies a return you actually believe.
How does payment growth (escalation) work?
Payment growth raises every payment by a fixed percentage each year — the standard defence against inflation eroding a level pension. Valuation uses the growing-annuity factor, which nets the growth rate against the return: when growth approaches the return the formula approaches its limit, and the calculator switches to the exact n ÷ (1 + i) form instead of dividing by a near-zero number. On the defaults, 2.5% escalation cuts the first payment from 3,299.78 to 2,653.77 — 19.6% lower — and the first-year payout rate to 6.37%, but every year the payments rise with prices. The pension preset applies the same idea to a 750,000 balance at 4% over 25 years, opening at 3,004.67 a month.
What is the difference between present value and future value?
Present value discounts a future stream back to today's money; future value compounds a stream forward to the end of the term. Value mode computes both from the same payments: 2,500 a month for 20 years at 5% is worth 378,813.28 today and grows to 1,027,584.17 — 600,000 contributed, 427,584.17 of it growth, or 41.61% of the maturity value. Payout mode works in present value, the lump sum you start with; accumulate mode works in future value, the target you end with; and the solve modes invert either one. Choosing due timing moves both figures, because the first payment lands immediately and each subsequent payment arrives one period sooner.
How much of my annuity income is interest?
Track it with income earned: total payments minus the lump sum that funded them. On the defaults the plan pays 791,946.89 over 240 months from 500,000, so 291,946.89 — equal to 58.39% of the original balance — is earnings above capital, and the schedule table labels the interest credited each period. Payout mode reports this as growth share measured against the lump sum; saving mode reports growth against the target instead, where the 250,000 goal comes out at 41.61% growth. The distinction matters for taxes in many jurisdictions, where withdrawals above cost basis are treated as earnings first — keep the schedule export with your records.
Can I use this calculator for a loan or mortgage?
The arithmetic is identical — a loan is a payout annuity read from the lender's side: the balance amortises to zero on the same factor, and the required return is the rate the payment implies. What differs is convention: loans quote nominal annual rates with monthly compounding, carry fees outside the factor, and usually fix the payment rather than the balance. For a quick implied-rate check, enter the loan amount as the lump sum and the payment you were quoted; the rate solver returns the annual rate that produces it — 500,000 paying 2,500 a month for 20 years implies 1.88%. For full amortisation schedules, origination fees, points and true APR, use the loan and APR calculators linked below.
What assumptions does this calculator make?
Four, and the methodology card lists them beside the formulas. The return rate is constant for the whole term and compounded at the payment frequency — monthly rates are the annual rate divided by twelve. Payments are ordinary or due throughout, never mixed within a calculation. Payment growth, when set, applies every period from the first. And no taxes, fees, indexation beyond the growth input, or mortality effects are modelled — a real insurer's annuity may price differently because it pools lifetimes. The warnings panel flags extreme inputs as you type: returns above 25% a year, growth above 10%, payout rates above 10%, terms beyond 50 years or under three.

Discover More Tools

Fresh picks from across our tool library.

Cash on Cash Return Calculator

Email Marketing ROI Calculator

Download Time Calculator

Concrete Calculator

Text Case Converter

Credit Score Simulator