Annuity Payout Calculator
Estimate monthly income from purchasing a lifetime annuity.
What this calculator does
This calculator estimates the monthly income a lump sum produces when converted into an annuity. Enter the premium, an assumed annuity rate and your retirement age, and it returns the monthly payout, the annual income, and the total paid out over the assumed horizon, alongside a table showing how each payment splits between interest and returned principal.
It is important to understand what the model does: it amortises your premium over the years to age 90 at the rate you supply, in the same way a loan is amortised. That is a close proxy for a period certain annuity, and a reasonable approximation of a lifetime quote, but it is not a real underwritten price.
When to use it
The obvious use is when you have received a quote and want to sanity check it. Entering the premium and solving for the rate that reproduces the quoted payment tells you what return the insurer is effectively crediting, which is the cleanest way to compare offers with different features.
It is also useful for the partial annuitization question. Work out the fixed expenses Social Security does not cover, then test what premium generates that shortfall. Most people find the required premium is a smaller slice of the portfolio than they feared, which leaves the remainder invested and accessible.
Understanding the inputs
Premium should be the amount you would actually hand over, after any advisory or product fees, since those reduce the sum being annuitized. Retirement age is when income begins, and it drives the number of payments the model assumes, because the horizon runs to 90 regardless of the age you enter.
The annuity rate here behaves as an interest rate rather than a quoted payout percentage. Setting it to 5 percent on a purchase at 65 produces a payout close to current single life quotes. Test a range: the difference between 4 and 6 percent on the same premium is several hundred dollars a month.
How is this calculated?
Monthly Payout = (Premium × r) / (1 - (1+r)^-n), where r is monthly rate and n is months in retirement.
A worked example
A $500,000 premium at age 65, at a 5 percent rate over the 25 years to 90, produces a monthly payout of roughly $2,923, or about $35,100 a year. Across the full horizon that totals around $877,000, of which $377,000 is interest credited on the declining balance.
Change the rate to 4 percent and the payment drops to about $2,639 a month; at 6 percent it rises to about $3,222. Buying at 70 instead of 65, which shortens the horizon to 20 years, lifts the 5 percent payout to roughly $3,300 a month on the same premium.
Limitations and assumptions
This model amortises a premium to a fixed age of 90, so it is a projection under assumptions rather than an annuity quote. Real single life annuities pay for as long as you live, which means the model understates the value of the product if you live to 95 and overstates it if you die at 75.
It also excludes insurer expense loadings and commissions, medical underwriting, joint life and survivor options, period certain riders, inflation escalation, and taxation, all of which move the real payment. Rates move with bond yields, so any figure here is a snapshot. Obtain live quotes from several carriers before committing capital you cannot get back.
Common Questions
- What income will a $500,000 annuity produce?
- At the rates typical for a single life immediate annuity purchased at 65, roughly $2,900 to $3,200 a month, or around $35,000 to $38,000 a year. Rates move with Treasury yields, so quotes obtained six months apart can differ by 10 percent or more on the same premium.
- Why does the payout rate exceed a safe withdrawal rate?
- Because of mortality pooling. An insurer can pay more than 4 percent a year because the money released by policyholders who die early funds those who live long. That mortality credit is the one thing a self-managed portfolio can never replicate, and it is what you are actually buying.
- Should I choose a level or inflation-adjusted payout?
- An inflation-linked annuity typically starts 25 to 30 percent lower than a level one and takes well over a decade to catch up. Level payments look attractive at first, but at 3 percent inflation a fixed income loses about a third of its purchasing power in 15 years.
- What happens to my money if I die early?
- With a plain single life annuity, payments simply stop, and that is the risk you accepted in exchange for a higher rate. A period certain rider guarantees payments for ten or twenty years regardless, and a cash refund option returns any unpaid premium, both at the cost of a lower monthly payout.
- How safe is the insurer?
- An annuity is only as strong as the company behind it. Check ratings from AM Best, Moody's and S&P, and note that state guaranty associations typically cover around $250,000 of present value per person per insurer, with limits varying by state. Splitting a large premium across two carriers is a common precaution.
- How is annuity income taxed?
- It depends on the source. An annuity bought inside an IRA or 401(k) is fully taxable as ordinary income. One bought with after-tax money uses an exclusion ratio, where part of each payment is a tax-free return of principal and only the earnings portion is taxed, until the principal is fully recovered.
- What is a QLAC?
- A qualified longevity annuity contract lets you move up to $210,000 in 2025 from an IRA or 401(k) into a deferred annuity starting as late as 85. The amount is excluded from required minimum distribution calculations, so it reduces forced withdrawals in your seventies while insuring against a very long life.
- Should I annuitize everything?
- Almost never. The common approach is to annuitize enough that Social Security plus the annuity covers essential fixed expenses, leaving the rest invested for flexibility, emergencies and bequests. Full annuitization removes liquidity permanently, and an annuity cannot be undone once the free-look period has passed.
- Does waiting to buy improve the rate?
- Yes, on two counts: fewer expected payment years and, usually, higher rates at older ages. Buying at 70 rather than 65 typically raises the monthly payout on the same premium noticeably. The cost is five years of income forgone, which is why delaying only makes sense if you have other assets to spend meanwhile.
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