Annuity Calculator
Calculate annuity future value, present value, or required periodic payment. Supports ordinary annuities (end-of-period payments) and annuities due (beginning-of-period payments) with annual or monthly compounding.
Annuity Results
Annuity Formulas
Future Value (Ordinary): FV = PMT × ((1+r)^n − 1) / r
Future Value (Due): FV = PMT × ((1+r)^n − 1) / r × (1+r)
Present Value (Ordinary): PV = PMT × (1 − (1+r)^-n) / r
Present Value (Due): PV = PMT × (1 − (1+r)^-n) / r × (1+r)
Where r = rate per period, n = number of periods, PMT = periodic payment.
Common Uses
- Retirement income: Determining monthly income from a nest egg
- Loan payments: Calculating mortgage or auto loan payment amounts
- Savings goals: Finding required contributions to reach a future balance
- Lottery payouts: Comparing lump sum vs. annual payment option
Ordinary Annuity vs. Annuity Due
An ordinary annuity makes payments at the end of each period — most loans and mortgages work this way. An annuity due makes payments at the beginning of each period — rent and lease payments are typical examples. Annuity due values are always higher than ordinary annuity values at the same rate because each payment earns (or avoids) one additional period of interest.
Worked Example: Retirement Income Annuity
You have $500,000 at retirement and want to know how much monthly income it can provide over 25 years at a 5% annual rate. Using the present value annuity formula, the monthly payment = $500,000 × (r / (1 − (1+r)^−n)), where r = 5%/12 = 0.4167% per month and n = 300 months. Monthly payment ≈ $2,923. Total payments over 25 years = $2,923 × 300 = $876,900. You receive $376,900 in interest above your original $500,000 over the 25-year period. At a higher 7% rate, the monthly payment rises to $3,534.
Annuity Types Comparison
| Annuity Type | Rate Tied To | Downside Risk | Best For |
|---|---|---|---|
| Fixed annuity | Locked rate | Inflation erosion | Risk-averse retirees |
| Variable annuity | Investment subaccounts | Market losses possible | Growth-seeking retirees |
| Indexed annuity | Market index with floor | Capped upside | Moderate risk tolerance |
| Immediate annuity | Fixed or variable | No liquidity | Instant income stream |
| Deferred annuity | Varies | Surrender charges | Pre-retirement accumulation |
Frequently Asked Questions
What is an annuity in personal finance?
In personal finance, an annuity is a contract — usually with an insurance company — that provides regular income payments in exchange for a lump-sum deposit. Annuities are often used to create guaranteed retirement income. They come in fixed (guaranteed rate), variable (market-linked), and indexed (tied to a market index with a floor) varieties.
How does annuity taxation work?
For non-qualified annuities (purchased with after-tax money), only the earnings portion of each payment is taxable as ordinary income. The original principal is returned tax-free. For qualified annuities (held in an IRA or 401k), the entire distribution is taxable because contributions were made pre-tax. Annuities don't receive the preferential capital gains treatment that stocks do.
Should I take an annuity or lump sum from a pension?
This depends on your life expectancy, other income sources, and risk tolerance. The annuity protects against outliving your money — valuable if you live into your 90s. The lump sum offers flexibility and the ability to leave assets to heirs, but requires disciplined investing. A useful rule of thumb: divide the lump sum by the annual annuity payment to find the "break-even" years. If you expect to live beyond that age, the annuity may win.
Annuities — especially variable and indexed types — often carry multiple fee layers: mortality and expense risk charges (0.5–1.5%/year), administrative fees (0.1–0.3%), investment management fees (0.5–2%), and rider fees for benefits like guaranteed minimum income (0.5–1.5%). Total annual costs of 2–4% are common, which significantly reduces long-term returns. Fixed immediate annuities from highly-rated insurers typically have no visible fees since costs are built into the payment rate.
It depends on the annuity type and selected riders. A life-only annuity pays until death and nothing to heirs afterward — the insurer keeps remaining funds. A joint-and-survivor annuity continues payments to a surviving spouse at a reduced amount. A period-certain annuity guarantees payments for a minimum period (e.g., 20 years) even if the annuitant dies; remaining payments go to beneficiaries. Understanding the death benefit provisions is critical when comparing annuity options.