An annuity payout turns a pile of money into a paycheck. Whether the lump sum comes from a deferred annuity, a 401(k) rollover, an inheritance or a pension buyout, the math is the same. The balance earns interest while a fixed amount comes out each period until the money, and the term, run out. This annuity payout calculator works it out in both directions: the payment a lump sum can support for a set number of years, or how long a payment you choose will last.
How to use the annuity payout calculator
- Enter the amount to annuitize and the interest rate credited during the payout years.
- Choose what to solve for:
- Payment for a set term: enter the number of years you want payments to run.
- How long a payment lasts: enter the payment you want each period.
- Pick the payment frequency (monthly, quarterly, semi-annual or annual) and whether payments come at the end or the start of each period.
- Optionally enter a yearly cost-of-living raise so the payment keeps its purchasing power.
The annuity payout formula
For level payments made at the end of each period:
- P is the amount annuitized.
- i is the rate per period: the annual rate divided by the payments per year.
- n is the total number of payments.
If payments come at the start of each period (an annuity due), the payment is that result divided by (1 + i). The first payment goes out before any interest is earned, so each payment is slightly smaller. With a yearly raise there is no simple closed form. The calculator instead finds the first-year payment that brings the balance to exactly zero on the final payment.
Worked example
You annuitize $250,000 at 4.5% for 20 years, paid monthly at the end of each month:
- i = 0.045 ÷ 12 = 0.375% and n = 240.
- PMT = 250,000 × 0.00375 ÷ (1 − 1.00375−240) = $1,581.62 a month.
- Total payouts are $379,589.63, so $129,589.63 is interest.
- With payments at the start of each month instead, the payment is $1,575.71.
Term, payment and payout rate
$250,000 at 4.5%, paid monthly:
| Payout term | Monthly payment | Year-one income as % of principal |
|---|---|---|
| 10 years | $2,590.96 | 12.4% |
| 20 years | $1,581.62 | 7.6% |
| 30 years | $1,266.71 | 6.1% |
| Interest only (never runs out) | $937.50 | 4.5% |
A payout rate above the interest rate means the payments are returning your own principal along with the interest. That is why a period-certain annuity eventually reaches zero.
Choosing a payout structure
A fixed payment is easy to budget, but inflation erodes it. At 2.5% inflation, a level payment buys about 39% less after 20 years. A cost-of-living raise protects buying power in exchange for a lower starting check. To see what your lump sum could grow to before payouts start, use the deferred annuity calculator. To value a stream of payments in today’s dollars, for example to compare an annuity quote with keeping the money invested, use the present value of annuity calculator. If the choice is a pension’s monthly check versus its lump sum, the pension calculator compares them directly.
Annuity income from pre-tax money, such as an IRA rollover, is taxed as ordinary income. With after-tax money, part of each payment is a tax-free return of your investment under the IRS exclusion-ratio rules.
Estimates only, not financial or insurance advice. Insurance company annuities carry fees, surrender charges and pricing that differ from this fixed-rate model; guarantees depend on the issuer's financial strength.
Frequently asked questions
How much does a $250,000 annuity pay per month?
At 4.5% interest paid out monthly over 20 years, $250,000 supports $1,581.62 a month, or $18,979 a year. The same amount pays $2,590.96 over 10 years and $1,266.71 over 30 years. Insurer quotes for life annuities depend on your age and their pricing, so they will differ.
What is the formula for an annuity payout?
For level payments, PMT = P × i ÷ (1 − (1 + i)^−n). P is the amount annuitized, i is the rate per payment period and n is the number of payments. If payments come at the start of each period, divide by (1 + i).
What does a cost-of-living raise cost me?
A rising payment starts lower. In the default example, a 2% yearly raise cuts the first-year payment from $1,581.62 to $1,344.96 a month. By year 20 it has grown to $1,959.36, and total payouts are higher.
What is the difference between period-certain and life annuities?
A period-certain annuity pays for a fixed number of years, and any payments left go to your beneficiary if you die early. That is what this calculator models. A life annuity pays as long as you live, so the insurer prices it on life expectancy. It usually pays more per month than a long period-certain payout, but stops at death unless you buy a guarantee.