Annuity Payout Calculator
Calculate the monthly income a fixed annuity or lump sum can pay over a set period at a given interest rate.
How to use this tool
- Enter the principal or lump sum funding the annuity.
- Set the annual interest rate the balance earns during payout.
- Choose the payout period in years.
- Read the monthly, annual, and total payout figures.
Turn a lump sum into a monthly paycheck. Enter your principal, an interest rate, and a payout period to see how much income it can provide.
Formula
Monthly payout uses the amortization (annuity-payment) formula:
Payment = P × r ÷ [1 − (1 + r)−n], where P is the principal, r is the monthly rate (annual rate ÷ 12) and n is the number of months (years × 12). When r = 0 the payout is simply P ÷ n.
Annual payout = Monthly × 12; total paid = Monthly × n. The total exceeds the principal by the interest the unpaid balance earns over the payout period.
How it works
A fixed-period annuity converts a lump sum into a steady paycheck by paying out both principal and the interest the remaining balance earns over a set term. The math is identical to a mortgage in reverse: instead of paying down a loan, you are drawing down a balance that keeps earning interest until it reaches zero at the end of the period.
This calculator uses the standard amortization formula to find the level monthly payment that exactly exhausts the principal over the chosen number of years at the stated rate. A higher interest rate or a shorter term raises the monthly payout; a longer term spreads the principal thinner but lets more interest accrue, so the total dollars paid rise.
This models a fixed, period-certain annuity with a constant rate. It does not model lifetime (life-contingent) annuities, inflation riders, fees, surrender charges, or taxes, all of which a real insurance contract would include. Use it for planning intuition. Reviewed by the AbraCalc Retirement Desk against the amortization formula. This calculator provides general information, not financial advice; consult a qualified professional for decisions about your own situation.
Worked example
$500,000 paid out over 20 years at 5%
- Monthly rate r = 5% ÷ 12 = 0.00416667; months n = 20 × 12 = 240.
- Denominator = 1 − (1.00416667)−240 = 0.631179.
- Monthly payout = $500,000 × 0.00416667 ÷ 0.631179 = $3,299.78.
- Annual payout = $3,299.78 × 12 = $39,597.34.
- Total over 20 years = $3,299.78 × 240 = $791,946.89.
Monthly payout: $3,299.78 — about $39,597.34 per year, totaling $791,946.89 over the term.
Monthly payout from $500,000 by term and rate
| Term | 3% | 5% | 7% |
|---|---|---|---|
| 10 years | $4,828.04 | $5,303.28 | $5,805.42 |
| 15 years | $3,452.91 | $3,953.97 | $4,494.14 |
| 20 years | $2,772.99 | $3,299.78 | $3,876.49 |
| 25 years | $2,371.06 | $2,922.95 | $3,533.90 |
| 30 years | $2,108.02 | $2,684.11 | $3,326.51 |
Key terms
- Annuity
- A contract that converts a lump sum into a series of periodic payments over a set term or for life.
- Amortization
- The process of paying down a balance with level payments that cover both interest and principal.
- Period-certain annuity
- An annuity that pays for a fixed number of years regardless of how long the owner lives.
- Payout rate
- The annual interest rate the annuity's balance earns while it is being paid out.
Frequently asked questions
- How is an annuity payout calculated?
- By amortizing the principal over the payout period: Payment = P × r ÷ [1 − (1 + r)^−n], where r is the monthly rate and n the number of months. The payment exactly exhausts the balance at the end of the term.
- Why does the total payout exceed the principal?
- Because the unpaid balance keeps earning interest throughout the payout period. Over 20 years at 5%, a $500,000 principal pays out about $791,947 in total.
- What is the difference between this and a lifetime annuity?
- This is a period-certain annuity that pays for a fixed number of years. A lifetime annuity pays as long as you live, so its payment depends on actuarial life expectancy rather than a fixed term.
- Does this include fees or taxes?
- No. Real annuity contracts include fees, surrender charges, and taxes on the earnings portion of each payment. This is a pre-fee, pre-tax estimate for planning purposes.