Annuity Payout Calculator

Calculate the payout length or payment of an annuity using the calculator below.

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How to Calculate the Payout for an Annuity

Annuities are a great way for people and investors of all kinds to prepare for their financial future. By making one large lump sum payment (or multiple payments) in the short term, holders of an annuity can receive regular payments over time.

Annuities are typically issued by insurance providers (particularly life insurance providers), banks, and other major financial institutions. Annuities offer predictable, generally stable future cash flows, which is why many investors prefer them to some alternative investment options, like stocks.

By learning how to calculate an annuity payout, you can decide whether investing in an annuity is right for you.

What is an Annuity Payout?

An annuity payout is a term used to represent an annuity that makes regular payments over the life of the annuity holder. In most cases, as long as the annuity holder remains alive, their payouts will begin at a predetermined point in time and continue being issued at the end of each subsequent period (typically, a year).

Annuity Payout Formula

Now that you understand how annuity payouts work, here is the formula you can use for calculating the payout value of an ordinary annuity. You can also use the annuity payout calculator to calculate different scenarios.

PMT = \frac{i \times P}{1 − \left ( 1 + i \right )^{−n}}

Where:
PMT = payment amount
P = principal (present value)
i = interest rate
n = payout length (number of periods)

For example, let’s calculate the regular payments for a 20-year annuity with a value of $1,000,000, earning 6% interest.

PMT = \frac{0.06 \times \$1,000,000}{1 − \left ( 1 + 0.06 \right )^{−20}}
PMT = \frac{\$60,000}{1 − 1.06^{−20}}
PMT = \frac{\$60,000}{1 − 0.3118}
PMT = \frac{\$60,000}{0.6882}
PMT = \$87,184\ per\ year

Annuity Payout Length Formula

You can use the following formula to calculate how long an annuity will pay out a specific payment:

n = \frac{{ −\ln \left( {1 − \frac{{P}}{{PMT}}i} \right)}}{{\ln \left( {1 + i} \right)}}

Where:
n = payout length (number of periods)
P = principal (present value)
PMT = payment amount
i = interest rate

You can also use a future value calculator to calculate the value of an annuity over time.

What Are the Different Annuity Payout Options?

There are several different benefits that qualify as an annuity payout option, though the “life only” option is typically the most common.

Some of the different types of annuity payout options include:

Life Only: Payments begin at a pre-established point in time and continue as long as the policyholder is alive. These are typically used as a component of retirement planning.

Fixed Amount: These annuities are not guaranteed for your entire life—instead, holders will be able to customize how much they want to receive each period and continue receiving withdrawals until the fixed annuity runs out (also known as a systematic withdrawal schedule).

Death Benefit Annuities: These annuities, which are typically sold by life insurance companies, make a lump sum payment to your pre-selected beneficiary in the event that you die before the annuity payments actually begin.

Fixed Period Annuities: These annuity payments begin and end at pre-determined points in time. For example, payments might start 10 years from and end 15 years after that, regardless of how long the policyholder lives.

Guaranteed Term Annuities (also known as “Life with Period Certainty”): These annuities provide a guaranteed stream of periodic cash payments and also include a guaranteed term of annuity payouts, which will be distributed to your beneficiaries.

Lump Sum Payment: With a lump sum annuity, policyholders will receive a large payment at a pre-determined point in time—be careful, though, because these annuities usually create a pretty large tax bill.

Also, depending on your financial needs, you might consider combining multiple annuities into a single policy.

You might also be interested in our present value interest factor of annuity calculator.