Annuity Calculator
Calculate annuity payments from a lump sum. See how much income you can generate from your savings.
A $300,000 annuity at 5% paid over 20 years pays $1,980 a month and $475,168 in total, though a level payment like this loses roughly 45% of its purchasing power to inflation across the term.
Calculator
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How This Calculator Works
Annuity payments are calculated so the principal is depleted over the payout period:
Payment = P × r / (1 - (1+r)^-n)
Worked example
Using the defaults — a $300,000 principal, 5% annual interest, paid out over 20 years:
Monthly: r = 5% ÷ 12 = 0.0041667, n = 240 payments.
Compute the discount factor. (1.0041667)^−240 = 0.3685, so 1 − 0.3685 = 0.6315.
Divide through. $300,000 × 0.0041667 ÷ 0.6315 = $1,980 per month ($1,979.87 before rounding).
Check the total payout. $1,980 × 240 = $475,168. You receive $175,168 more than the original $300,000, and that difference is the interest the pot earned while it was being drawn down.
See what inflation does to it. $1,980 a month in year one is $1,980. In year twenty, at 3% inflation, it buys what about $1,096 buys today. A level annuity payment loses roughly 45% of its purchasing power across a twenty-year payout.
Enter 300000, 5 and 20 above to reproduce the $1,980 monthly figure. Real annuity quotes also price in mortality credits and insurer expenses, so a commercially quoted payment will differ from this pure time-value calculation.
Same $300,000, different payout horizons
A shorter payout period means larger monthly payments — and a materially higher risk of outliving the money.
| Payout period | Monthly payment | Total received | Interest component |
|---|---|---|---|
| 10 years | $3,182 | $381,836 | $81,836 |
| 15 years | $2,372 | $427,029 | $127,029 |
| 20 years (default) | $1,980 | $475,168 | $175,168 |
| 25 years | $1,754 | $526,131 | $226,131 |
| 30 years | $1,610 | $579,767 | $279,767 |
Payments differ from a simple balance ÷ months because the remaining balance keeps earning. The interest component is total received minus the $300,000 principal.
Common mistakes with this calculation
- Comparing a level annuity with an inflation-linked one at face value. A level annuity paying $1,979 looks better than an inflation-linked one paying $1,500 today. But the level payment is worth $1,096 in twenty years, while the linked payment is still worth $1,500. The comparison only makes sense in today's money.
- Ignoring that a fixed-period annuity can run out. A 20-year annuity ends in exactly 240 months whether you are alive or not. If you live to 95, the last decade has no annuity income at all. Longevity risk is not covered by a fixed-period product.
- Forgetting that annuity income is taxed. Payments from a qualified annuity funded with pre-tax money are fully taxable as ordinary income. Payments from a non-qualified annuity funded with after-tax money are partly taxable, using an exclusion ratio. This calculator shows gross figures only.
- Buying an annuity before exhausting tax-advantaged space. Annuities are expensive relative to the tax shelter they provide. Maxing out a 401(k) and an IRA first, then considering an annuity for longevity insurance, is the sequence that most advisers recommend.
When this calculator does not apply
- This is a pure time-value calculation. It does not price mortality credits, surrender charges, rider fees, or insurer credit risk.
- It assumes a constant interest rate throughout the payout period. In practice, annuity pricing is locked at purchase and never changes.
- It assumes a fixed payout period with nothing left at the end. Life annuities pay until death and are priced differently.
- Inflation is not modelled, and a level annuity payment loses purchasing power every year.
- Tax treatment depends on whether the annuity is qualified or non-qualified and is not modelled here.
Frequently Asked Questions
What happens at the end of the payout period?
For a fixed-period annuity, payments stop and the principal is fully depleted. For life annuities, payments continue until death.
Are annuity payments taxable?
If the annuity was funded with pre-tax money (qualified), all payments are taxed as ordinary income. If post-tax (non-qualified), only the earnings portion is taxed.
Sources & Methodology
This calculator uses standard financial formulas. See our methodology page for the full formula derivation.
- Annuities US Securities and Exchange Commission
- Retirement Annuities — Consumer Information Consumer Financial Protection Bureau
- Publication 575 — Pension and Annuity Income Internal Revenue Service
- Life Expectancy and Annuity Pricing US Social Security Administration
- Retirement Topics Internal Revenue Service
Last reviewed .
Key takeaways
- $300,000 at 5% over 20 years pays $1,979 a month and $474,960 in total.
- A shorter payout period raises the monthly payment and raises the risk of outliving the money.
- A level annuity payment loses roughly 45% of its purchasing power over twenty years at 3% inflation.
- Annuity income is taxed; a qualified annuity's payments are fully taxable as ordinary income.
- Use an annuity for longevity insurance, not as a first-choice tax shelter.