Annuity Calculator
An annuity is a financial contract, typically issued by an insurance company, that provides a stream of income payments in exchange for a lump sum or a series of premium payments. Fixed annuities pay a guaranteed interest rate during the accumulation phase and can later be converted to a guaranteed lifetime income stream. Variable annuities invest in underlying sub-accounts with returns that fluctuate with market performance. Fixed indexed annuities credit interest based on the performance of a market index, subject to caps or participation rates, and guarantee the principal against loss. Annuities are often used in retirement planning because they can provide income you cannot outlive, supplementing Social Security and other retirement savings. The tax treatment depends on whether the annuity is held in a qualified retirement account or a non-qualified (after-tax) account. In a non-qualified annuity, contributions are made with after-tax money, growth is tax-deferred, and only the earnings portion of each withdrawal is taxable as ordinary income. In a qualified annuity (inside an IRA or 401k), all withdrawals are fully taxable. This calculator focuses on fixed annuities, computing the future value of an accumulation-phase annuity using a guaranteed rate and contribution schedule, and then converting that balance to a monthly income payment using an amortisation formula over a specified payout period at the specified payout rate.
Initial deposit of $50,000 plus $500/month for 10 years at 4.5% will grow to --.
Annuity calculations
Accumulation phase
In the accumulation phase, your money grows at a guaranteed rate. The future value depends on:
- Initial deposit and its growth
- Regular monthly deposits and their growth
- The guaranteed interest rate
- Whether deposits are made at the start (due) or end (ordinary) of each period
Ordinary annuity FV = PV(1+r)^n + PMT[(1+r)^n - 1] / r
Annuity due FV = PV(1+r)^n + PMT[(1+r)^n - 1] / r * (1+r)
where r = monthly rate, n = number of months, PV = initial deposit, PMT = monthly payment
Payout phase
In the payout phase, the annuity pays you a fixed amount monthly or annually based on:
- The accumulated balance (or initial lump sum for immediate annuities)
- The guaranteed payout rate
- The length of the payout period
Monthly Payment = PV * r / [1 - (1+r)^(-n)]
where r = monthly interest rate, n = number of months, PV = available balance
Worked example (accumulation)
Initial $50,000, $500/month for 10 years at 4.5%, ordinary annuity:
- Monthly rate r = 4.5% / 12 = 0.375% = 0.00375
- PV future value = 50,000 * (1.00375)^120 = $62,387.68
- PMT future value = 500 * [(1.00375)^120 - 1] / 0.00375 = $67,699.55
- Total = $62,387.68 + $67,699.55 = $130,087.23
Understanding annuities and income planning
Fixed annuities provide certainty and guaranteed income. They are appropriate for retirement savings you want to convert to steady income without taking market risk. The insurance company's guaranteed rate is fixed upfront, so you know exactly what you will receive regardless of interest rate changes or market conditions.
One important concept is the exclusion ratio, which determines how much of each payment is return of principal (not taxed) versus earnings (taxed as ordinary income). Early withdrawals during the accumulation phase may trigger surrender charges and a 10% penalty if you are under age 59-1/2. The SEC provides consumer guidance on annuity types, features, and risks.
For retirement income planning, many financial advisors recommend a "bucket strategy" combining annuities (for guaranteed income) with other investments (for growth). This balanced approach provides both security and opportunity. Consult a tax professional to understand how your specific annuity will be taxed.
Annuity calculator: frequently asked questions
What is a fixed annuity?
A fixed annuity is an insurance product that promises a guaranteed rate of return on your investment and a guaranteed income stream during the payout phase. The insurance company bears the investment risk. You pay a lump sum (or series of payments) upfront, and in return receive guaranteed periodic payments for a specified period or for life. The fixed rate is guaranteed by the issuing insurance company's claims-paying ability.
What is the difference between accumulation and payout phases?
In the accumulation phase, you deposit money into the annuity and it grows at a guaranteed rate. In the payout phase, the insurance company makes periodic payments to you based on the accumulated balance, the payout period, and the guaranteed rate. Some annuities go directly to payout (immediate annuities), while others accumulate first, then convert to payout (deferred annuities).
Are annuity earnings taxed?
If the annuity is held in a tax-deferred account (like an IRA), growth is tax-deferred and withdrawals are taxed as ordinary income. If held in a taxable account, earnings are taxed as ordinary income when withdrawn (not capital gains treatment). Annuity payments include both return of principal and earnings. Only the earnings portion is subject to income tax. The insurance company typically reports this breakdown on Form 1099-R.
What is an annuity due vs. an ordinary annuity?
An ordinary annuity makes payments at the end of each period. An annuity due makes payments at the beginning of each period. Because annuity due payments occur earlier, they accumulate slightly more interest over the same time period. This calculator shows the difference in the formulas used.
Can I withdraw money from a fixed annuity before the payout phase?
Some fixed annuities allow partial withdrawals (typically up to 10% annually without penalty) during the accumulation phase. However, surrendering the annuity early usually triggers a surrender charge, which decreases over time. Always read your contract to understand the withdrawal options and penalties. After the payout phase begins, withdrawals are typically restricted.
What is the difference between fixed and variable annuities?
A fixed annuity guarantees a rate of return set by the insurance company. A variable annuity's return depends on the performance of underlying investment funds you choose. Variable annuities carry market risk and potentially higher fees, but offer greater upside potential. The SEC and FINRA provide detailed comparisons and investor guidance.
Official sources
- Annuity taxation and rules: IRS Publication 575: Pension and Annuity Income.
- Annuity investor bulletin: SEC/FINRA Annuity Basics.
- Variable annuity guidance: FINRA Annuities.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information, not financial advice.