Annuity Calculator

Annuity payment depends on whether it's ordinary (paid at end of period) or annuity due (paid at start). For an ordinary annuity: PMT = PV × r / [1 − (1 + r)^−n], where PV is present value, r is rate per period, n is number of periods. Example: $200,000 invested at 5% for 20 years annual payouts. PMT = 200,000 × 0.05 / [1 − 1.05^−20] = $16,049/year. Annuity due pays slightly more per period. The calculator handles both types and immediate vs deferred annuities.

Present value of annuity = PMT × [1 − (1 + r)^−n] / r. Example: $1,000/month for 25 years at 6% annual (0.5% monthly). PV = 1000 × [1 − 1.005^−300] / 0.005 = roughly $155,207. So $155,207 today equals $1,000 monthly for 25 years at 6% interest. This calculation matters when comparing lump sum payouts vs annuity options (lottery winnings, pension, settlement). PV of annuity also used in valuing fixed income streams in insurance and estate planning. The calculator handles ordinary and due annuities, monthly or annual periods.

Ordinary annuity pays at the end of each period (most common — bonds, mortgages). Annuity due pays at the beginning of each period (rent, lease payments, some pensions). For the same payment, frequency, and rate, annuity due has higher present and future value because each payment has more time to earn interest. PV difference = ordinary PV × (1 + r). Example: $1,000/year for 10 years at 5%: ordinary PV = $7,722; annuity due PV = $8,108 (5% more). Always identify which type you're dealing with — the difference compounds. The calculator handles both.

Future value of annuity = PMT × [(1 + r)^n − 1] / r. Example: $500/month for 20 years at 7% (0.5833% monthly). FV = 500 × [(1.005833)^240 − 1] / 0.005833 = roughly $260,463. You contributed $120,000 over 20 years; the rest is compounded growth. This formula is used for retirement planning, sinking fund calculations, and savings goals. Annuity due adds one more period of growth: FV_due = FV_ordinary × (1 + r). The calculator handles both monthly and annual contributions for any rate and tenure.

Higher interest rate means higher annuity payments for a given lump sum, since the corpus earns more during payout. Example: $300,000 at 4% for 25 years pays ~$19,200 annually; at 6%, it pays ~$23,440. Lower rates mean smaller checks. This is why annuity quotes vary across providers and over time. Insurance company annuity products lock in rates at purchase — buying when rates are higher gives bigger lifetime payouts. Inflation also matters — fixed annuities lose purchasing power. The calculator shows payment streams at different interest rate scenarios for comparison.

Annuity income depends on lump sum, rate, term, and annuity type. Example: $500,000 lump sum at 5% for 20 years gives roughly $3,300/month. For lifetime annuity, depends on age and life expectancy — typical 65-year-old gets $5-6,000 monthly per $1 million premium (US rates). Joint-life (covering spouse) reduces this. Inflation-adjusted (COLA) annuities pay less initially but rise. Always compare quotes from multiple insurers. Annuities lock in rates, so timing matters. The calculator shows monthly income for various annuity structures.

Annuities provide guaranteed lifetime income, removing longevity risk — that's their main appeal. Downsides: high fees, low liquidity (often surrender penalties), inflation risk (fixed payouts erode), and credit risk of the issuing insurer. Best for conservative retirees worried about outliving savings. Worst for those wanting flexibility or higher returns. Often a 25-50% annuity allocation works as a "pension floor" — covering basic needs — while the rest stays invested for growth and flexibility. SPIA (single premium immediate annuity) has highest payouts; variable annuities have growth potential but complexity. Compare carefully.