An annuity is a financial product that converts a lump sum into a stream of regular payments. You pay an insurance company a lump sum and receive guaranteed income — monthly, quarterly, or annually — for a set period or for life.

How is an annuity payment calculated?

For a fixed annuity paying out over n periods at rate r per period: PMT = PV × r × (1+r)^n / ((1+r)^n − 1). The payment depends on principal, interest rate, and payout period length.

What is the difference between an immediate and deferred annuity?

An immediate annuity starts paying right away. A deferred annuity accumulates value during a deferral period before payments begin, giving your money more time to grow.

Are annuity payments taxable?

The taxable portion depends on how the annuity was funded. With after-tax dollars, only the gain is taxable. With pre-tax dollars (like an IRA), the full payment is taxable as ordinary income.

What is a good annuity rate?

Fixed annuity rates in 2025–2026 range from about 4.5% to 6.5% for 5–10 year terms. Rates depend on the insurer, term length, and Federal Reserve rates. Always compare quotes from multiple carriers.

Annuity Calculator

Calculate annuity payments from a lump sum investment. Find monthly income, total payouts, and interest earned. Covers immediate, deferred, and variable annuities.

Initial Investment ?

Annual Interest Rate ?

Payout Period (Years) ?

Payout Frequency ?

Periodic Payment

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Total Payouts —

Total Interest Earned —

Number of Payments —

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Monthly Contribution

Initial Deposit

Annual Interest Rate

Accumulation Period (Years)

Future Value

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Total Contributed —

Interest Earned —

Est. Monthly Payout (20 yr) —

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Principal / Purchase Price

Annual Interest Rate

Payout Period (Years)

Annuity Type

Deferral Period (Years)

Payment Timing

Inflation Rate (%)

Surrender Charge (%)

Mortality & Expense Ratio (%)

Tax Bracket (%)

Payout Summary

Accumulated Value at Payout Start —

Monthly Gross Payment —

Annual Gross Payment —

Total Gross Payouts —

After Tax & Inflation

Monthly After-Tax Payment —

Inflation-Adjusted Monthly (Year 20) —

Costs & Risks

Early Surrender Value (Year 1) —

Net Expense Drag (Annual) —

How to Use This Calculator

Enter your Initial Investment — the lump sum going into the annuity.
Enter the Annual Interest Rate — use the guaranteed rate from your annuity contract.
Set the Payout Period in years — how long you want income to last.
Select Payout Frequency — monthly is most common.
Use the Accumulation tab to build up a future annuity value with monthly savings.

Formula

Annuity Payment (Ordinary Annuity):

PMT = PV × r × (1+r)^n / ((1+r)^n − 1)

PV = Present value (lump sum), r = Periodic rate, n = Number of periods

Example

Example: $200,000 lump sum, 5% annual rate, 20-year payout, monthly payments.

Monthly Rate: 5% ÷ 12 = 0.4167%
Number of Payments: 240
Monthly Payment: $1,319.91
Total Payouts: $316,778 | Interest Earned: $116,778

Frequently Asked Questions

An annuity is a financial product that converts a lump sum into a stream of regular payments. You pay an insurance company a lump sum and receive guaranteed income — monthly, quarterly, or annually — for a set period or for life.
For a fixed annuity paying out over n periods at rate r per period: PMT = PV × r × (1+r)^n / ((1+r)^n − 1). The payment depends on principal, interest rate, and payout period length.
An immediate annuity starts paying right away. A deferred annuity accumulates value during a deferral period before payments begin, giving your money more time to grow.
The taxable portion depends on how the annuity was funded. With after-tax dollars, only the gain is taxable. With pre-tax dollars (like an IRA), the full payment is taxable as ordinary income.
Fixed annuity rates in 2025–2026 range from about 4.5% to 6.5% for 5–10 year terms. Rates depend on the insurer, term length, and Federal Reserve rates. Always compare quotes from multiple carriers.

Related Calculators

Sources & References (5) ▾

SEC — Investor Bulletin: Variable Annuities — U.S. Securities and Exchange Commission
FINRA — Annuities Overview — Financial Industry Regulatory Authority
IRS Publication 575 — Pension and Annuity Income — Internal Revenue Service
Department of Labor — Annuity Selection Tips — U.S. Department of Labor
NAIC — Annuity Buyer's Guide — National Association of Insurance Commissioners