Annuity Payout Calculator
Results
Periodic Payment
$0.00
Present Value (PV)
$0.00
Future Value (FV)
$0.00
Total Payouts
$0.00
Total Interest Earned
$0.00
Total Tax Paid
$0.00
Net Payout (After Tax)
$0.00
Inflation-Adjusted Yield
0.00%
Charts
Calculation History (Last 5)
What is an Annuity?
An annuity is a financial product sold by insurance companies designed to provide a steady stream of income, typically during retirement. You make an investment (either a lump sum or a series of payments), and in return, the insurer agrees to make periodic payments to you for a specified period or for the rest of your life. Annuities are primarily used as a retirement income tool to ensure you don't outlive your savings.
Types of Annuities
- Fixed Annuity: Offers a guaranteed, fixed interest rate and predictable payment amounts. This is a low-risk option ideal for conservative investors who prioritize stability over growth potential.
- Variable Annuity: Allows you to invest your principal in various sub-accounts (similar to mutual funds). Payments can fluctuate based on the performance of these investments, offering higher growth potential but also carrying market risk.
- Immediate Annuity: Payouts begin almost immediately after you make your lump-sum investment (usually within one year). This is suitable for individuals who are at or near retirement and need income right away.
- Deferred Annuity: Payouts begin at a future date that you choose. This allows your investment to grow tax-deferred during the "accumulation phase" before income payments start in the "payout phase."
Annuity Formulas
The core calculations for an ordinary annuity rely on these fundamental formulas:
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Future Value (FV): Calculates the total value of payments at a future date.
FV = PMT * [((1 + r)^n - 1) / r] -
Present Value (PV): Calculates the current value of a series of future payments.
PV = PMT * [(1 - (1 + r)^-n) / r] -
Payment (PMT): Calculates the amount of each periodic payment based on the present value. Our calculator primarily uses this formula.
PMT = PV * [r * (1 + r)^n] / [(1 + r)^n - 1]
Where: PMT is the periodic payment, PV is the present value (initial investment), r is the periodic interest rate, and n is the total number of periods.
Frequently Asked Questions (FAQ)
- 1. How do I calculate annuity payments?
- You can calculate annuity payments (PMT) using the present value annuity formula:
PMT = PV * [r(1+r)^n] / [(1+r)^n - 1], where PV is the principal, r is the periodic interest rate, and n is the total number of payments. Our calculator automates this complex calculation for you. - 2. Are annuity payouts taxable?
- Yes, the earnings portion of annuity payouts is typically taxable as ordinary income. The portion that is a return of your principal (the initial investment) is generally not taxed. The exact tax treatment depends on whether the annuity was purchased with pre-tax (qualified) or after-tax (non-qualified) funds.
- 3. Which is better: a fixed or variable annuity?
- A fixed annuity is better for those seeking guaranteed, predictable income with no market risk. A variable annuity is better for those with a higher risk tolerance who want the potential for greater returns (and thus higher payouts) by investing in market-based sub-accounts, but this also comes with the risk of loss.
- 4. Can I outlive my annuity?
- It depends on the payout option you choose. If you select a 'period certain' annuity (e.g., for 20 years), payments will stop after that period, and you could outlive it. If you choose a 'lifetime' or 'joint life' option, the insurance company guarantees payments for as long as you (or your spouse) live, providing protection against outliving your assets.
- 5. How does inflation affect annuities?
- Inflation erodes the purchasing power of fixed annuity payments over time. A $2,000 monthly payment today will buy less in 10 or 20 years. To combat this, you can purchase an inflation-protected annuity (also called a COLA rider), where payments increase annually by a set percentage or in line with an inflation index like the CPI.
- 6. Can I withdraw early from an annuity?
- Yes, but it often comes with significant costs. Most annuities have a 'surrender period' (typically 5-10 years) during which withdrawals are subject to surrender charges. Additionally, if you are under age 59½, you may face a 10% federal tax penalty on the earnings portion of the withdrawal, on top of ordinary income taxes.
