Two annuity questions
In finance, an annuity is any series of equal payments made at regular intervals. This calculator answers the two common questions about one. In payout mode, it finds the level payment a lump sum can support for a set term before the money runs out, which is how a fixed-period income annuity or a planned drawdown works. In accumulation mode, it finds what regular payments will grow to, which is how saving a fixed amount every month works.
An annuity is also the name of an insurance product: a contract where you pay an insurer a lump sum or a series of payments and it pays you income, either starting right away (an immediate annuity) or later (a deferred annuity). The maths here covers fixed-rate, fixed-term payments; lifetime income annuities also depend on life expectancy and the insurer's pricing.
Ordinary annuity vs annuity due
In an ordinary annuity, each payment happens at the end of the period: loan payments and most bond coupons work this way. In an annuity due, each payment happens at the start: rent, insurance premiums and many lease payments are paid in advance.
The difference is one period of interest on every payment. When you are saving, an annuity due grows to more, because each deposit earns interest for one extra period. When you are drawing income, an annuity due pays a slightly smaller amount, because each payment leaves the account one period earlier and the balance has less time to earn interest.
Before you buy an annuity product
Commercial annuities can carry surrender charges if you withdraw early, annual fees, and charges for optional riders, all of which reduce what you receive. Payments also depend on the insurer's financial strength and claims-paying ability. Compare any quote against the payment this calculator shows for the same lump sum, rate and term; a large gap tells you how much you are paying for features such as lifetime income.
Annuity formulas
Payout: PMT = PV × i ÷ (1 − (1 + i)^−n)Accumulation: FV = PMT × ((1 + i)^n − 1) ÷ iAnnuity due: multiply FV by (1 + i), or divide PMT by (1 + i)- PV = lump sum, PMT = payment each period, FV = future value
- i = annual rate ÷ payments per year, n = number of payments
Example
- Payout: $250,000 at 5% a year, paid monthly for 20 years, payments at the end of each month.
- i = 0.05 ÷ 12 = 0.4167% and n = 240.
- PMT = 250,000 × 0.004167 ÷ (1 − 1.004167^−240) = $1,649.89 a month. Over 20 years that is $395,973.44 in total, of which $145,973.44 is interest.
- Paid at the start of each month instead (annuity due), the payment is 1,649.89 ÷ 1.004167 = $1,643.04.
- Accumulation: saving $500 at the end of every month for 20 years at 5% grows to 500 × (1.004167^240 − 1) ÷ 0.004167 = $205,516.83, from $120,000 of payments. Paid at the start of each month, it grows to $206,373.15.
Frequently asked questions
How much does a $250,000 annuity pay per month?
At 5% for 20 years, $250,000 supports $1,649.89 a month paid at the end of each month. At the same rate paid yearly, it supports $20,060.65 a year. A lifetime annuity from an insurer is priced on your age and life expectancy, so a quote will differ.
What is the difference between an ordinary annuity and an annuity due?
Timing. Ordinary annuity payments come at the end of each period; annuity due payments come at the start. An annuity due is worth more by a factor of (1 + i), where i is the rate per period.
What interest rate should I use?
For a fixed-term payout, use the rate the money will earn while it is being paid out. For a quote from an insurer, use the rate they guarantee, if they disclose it. Higher rates mean higher payouts and larger future values.
Are annuity payments taxable?
Usually in part. For an annuity bought with after-tax money, the part of each payment that represents a return of the after-tax amount you paid is not taxed, while the rest is. Payments from annuities held in IRAs or 401(k)s follow those accounts' rules.
Sources
Last reviewed for 2026. How we calculate.