Determine the periodic payments you can receive from a lump sum investment, or figure out how much you need to invest to achieve your desired payment stream. Useful for retirement income planning.
An annuity is a financial product that converts a lump sum of money into a stream of periodic payments over a specified time horizon. The original lump sum earns interest, and each periodic payment draws down both interest and principal. The structure makes annuities useful for any situation where someone wants a predictable income stream from a fixed pool of money — retirement income, structured settlements, lottery payouts, pension distributions, or simply "I have $500K and want it to last 25 years."
This calculator uses the standard annuity payout formula to compute what periodic payment a given lump sum supports at a given rate over a given term. It also works in reverse: enter a desired payment and the calculator tells you the lump sum needed to support it. The math here is the same as the math behind insurance company immediate annuities — the difference between this calculator and an actual annuity product is that the insurance company adds a profit margin and (for lifetime annuities) mortality assumptions.
A key distinction: this calculator models a fixed-term annuity (payments for a set number of years). Real-world annuities also come in lifetime versions (payments for as long as you live) and joint-life versions (payments until both spouses die). Lifetime annuities use actuarial mortality tables and pay more per period than equivalent fixed-term annuities, but the math is more complex and outside the scope of this simpler tool. Use this calculator for planning estimates; consult a qualified advisor for actual annuity purchase decisions.
$600,000 401(k) balance at retirement, want monthly income for 25 years, expecting 5% return. PMT = 600,000 × [0.004167 × (1.004167)^300] / [(1.004167)^300 − 1] ≈ $3,508/month Annual income: $42,096 Total payments: $1,052,400 Interest earned over 25 years: $452,400 The "longer your money lasts" rate (5%) and the time horizon (25 years) together determine the income. At 3% return, the same $600K supports only ~$2,844/month for 25 years.
Lottery jackpot: $100M paid as 30-year annuity (~$3.33M/year). Lump sum option: $60M. Solving for the implied rate of the annuity stream: $60M lump sum that supports $3.33M/year for 30 years requires a rate of about 4.0%. If you can earn 5%+ on the lump sum after taxes, taking the lump sum and managing it yourself produces more value than the annuity. If you can only earn 3%, the annuity produces more. Caveat: lottery winners often face crisis-level disruption to their financial lives. Annuities provide forced discipline; lump sums require excellent financial control.
Inherit $300,000. Want $2,000/month income from it. At what rate would it last 20 years? Solving for r in: 2,000 = 300,000 × [r × (1+r)^240] / [(1+r)^240 − 1] Required rate: approximately 6.0% annualized. If you can only earn 4% safely, the same $2,000/month income lasts about 17 years before depletion. Either reduce monthly draw or accept more market risk for the higher rate.
Use this calculator when planning any income-from-principal scenario: structured retirement withdrawals from a brokerage account, planning what an inheritance can sustain, comparing lottery annuity vs lump-sum options, evaluating structured settlement offers, or sizing a 529 college fund's drawdown during the college years.
It's a basic planning tool, not an investment recommendation. Real-world implementations face complications the calculator doesn't model: market volatility (sequence-of-returns risk in early years), inflation eroding the real value of fixed payments, taxes (annuity payments include both return of principal — non-taxable — and interest — taxable), and longevity uncertainty (will you outlive the planned term?).
For retirement income specifically, pair this calculator with the retirement-savings calculator (broader projection), the social-security calculator (since SS provides inflation-adjusted lifetime income that pairs well with annuity-style withdrawals from a portfolio), and the FIRE calculator (which uses a similar mathematical framework — 4% withdrawal rate is essentially an annuity calculation in reverse).
Insurance company annuities (immediate annuities, deferred annuities) use this same math as a starting point but layer on additional features: lifetime guarantees, joint-life options, inflation riders, death benefits, and surrender charges. Costs can be substantial — insurance company annuities typically pay back the equivalent of a 5–6% return on equivalent self-managed portfolios after fees, vs. perhaps 7%+ on a typical equity portfolio. The trade-off is the longevity insurance (income for life) and guaranteed nature, both of which have real value for some retirees but cost real money.
Self-managed annuity-style withdrawal (the "systematic withdrawal" approach) from a balanced portfolio is the most common alternative — same income concept, you keep the underlying assets and any unused balance at death, but you take on the market risk yourself.
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Monthly Payment
$3,300
Total Payments
$791,947
Total Interest Earned
$291,947
| Year | Payments | Principal | Interest | End Balance |
|---|---|---|---|---|
| 1 | $39,597.34 | $14,936.56 | $24,660.79 | $485,063.44 |
| 2 | $39,597.34 | $15,700.74 | $23,896.60 | $469,362.70 |
| 3 | $39,597.34 | $16,504.02 | $23,093.33 | $452,858.68 |
| 4 | $39,597.34 | $17,348.40 | $22,248.95 | $435,510.29 |
| 5 | $39,597.34 | $18,235.97 | $21,361.37 | $417,274.32 |
| 6 | $39,597.34 | $19,168.96 | $20,428.38 | $398,105.36 |
| 7 | $39,597.34 | $20,149.68 | $19,447.66 | $377,955.68 |
| 8 | $39,597.34 | $21,180.58 | $18,416.77 | $356,775.10 |
| 9 | $39,597.34 | $22,264.21 | $17,333.13 | $334,510.89 |
| 10 | $39,597.34 | $23,403.29 | $16,194.05 | $311,107.59 |
| 11 | $39,597.34 | $24,600.65 | $14,996.69 | $286,506.94 |
| 12 | $39,597.34 | $25,859.27 | $13,738.08 | $260,647.67 |