Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A modeled level payout assumes a simplified fixed-period structure, while a real insurance-company annuity quote also factors in mortality pooling, guarantees and the option to add survivor benefits, features that change the actual payout amount in ways this simplified calculation doesn't attempt to replicate.
Before you rely on it
What to check
Compare fixed-period modeled payouts against actual lifetime and survivor-option quotes from an insurer before assuming any one structure is the better deal.
The common error
Where people go wrong with annuity payout calculator
Assuming a fixed-period payout and a lifetime annuity payout are directly comparable using the same modeled math. Lifetime products price in mortality risk pooling that a fixed-period calculation doesn't account for at all.
Sensitivity evidence
How annual payout interest rate changes the estimated monthly payout
| Annual payout interest rate | Estimated monthly payout | Total modeled payouts | Modeled interest component |
|---|---|---|---|
| 2.0% | $2,024 | $485,648 | $85,648 |
| 3.0% | $2,218 | $532,414 | $132,414 |
| 4.0%worked example | $2,424 | $581,741 | $181,741 |
| 5.0% | $2,640 | $633,558 | $233,558 |
| 6.0% | $2,866 | $687,774 | $287,774 |
Every input, tested
Which input moves the estimated monthly payout most
| Input | Tested from | To | Estimated monthly payout at each end | Swing |
|---|---|---|---|---|
| Payout period | 15.0 years | 25.0 years | $2,959 to $2,111 | $847 (35%) |
| Amount annuitized | $360,000 | $440,000 | $2,182 to $2,666 | $485 (20%) |
| Annual payout interest rate | 3.0% | 5.0% | $2,218 to $2,640 | $421 (17%) |
Two variables at once
Estimated monthly payout by annual payout interest rate and amount annuitized
| Annual payout interest rate \ Amount annuitized | $320,000 | $400,000 | $480,000 |
|---|---|---|---|
| 2.0% | $1,619 | $2,024 | $2,428 |
| 3.0% | $1,775 | $2,218 | $2,662 |
| 4.0% | $1,939 | $2,424 | $2,909 |
| 5.0% | $2,112 | $2,640 | $3,168 |
| 6.0% | $2,293 | $2,866 | $3,439 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Amount annuitized | $400,000 |
| Annual payout interest rate | 4.0% |
| Payout period | 20.0 years |
| Estimated monthly payout | $2,424 |
| Total modeled payouts | $581,741 |
| Modeled interest component | $181,741 |
Where the inputs come from
Amount annuitized is the lump sum converted into a stream of payments, the payout interest rate is the rate the insurer or model uses to compute payments, and the payout period is the number of years of guaranteed payments. This tool models a fixed period, like a period-certain annuity, and not a life annuity, whose payment also depends on your age and mortality. Get an actual quote to compare with the model.
When the result stops applying
A fixed payment loses purchasing power to inflation unless the contract includes increases, which lower the starting payment. The model ignores insurer fees and commissions, and payments from an actual contract depend on the company's pricing and your age. Payments end at the period's end, so there is no lifetime protection. A quote from several insurers will differ.
What to compare it with
Compare with the immediate annuity calculator, and value a stream with the annuity present value calculator. The retirement withdrawal page shows the portfolio-draw alternative, and the Social Security claiming page shows another way to buy guaranteed income. A pension lump sum comparison uses the same math.
People also ask
Frequently asked questions
What is a period-certain annuity?
An annuity that pays for a set number of years, such as 20, regardless of how long you live. If you die early, the remaining payments go to a beneficiary.
How is a life annuity different?
A life annuity pays as long as you live, so the payment depends on your age and life expectancy, and it is usually higher than a fixed-period payment of the same amount.
Will my annuity payment rise with inflation?
Only if you buy an inflation rider, which lowers the starting payment. Most immediate annuities pay a fixed amount.