Annuity Payout Calculator

Say you retire with $500,000 and want it to last 20 years while it keeps earning 5% a year. Paid monthly, that lump sum produces about $3,300 per month - roughly $39,600 a year - and the balance is drawn down to exactly zero at the end of year 20. Over those two decades you collect close to $792,000, meaning the account earned about $292,000 in interest while you were spending it. That is the core question an annuity payout calculator answers: how much steady income a pile of money can pay you, and for how long.

How the payout is calculated

For a fixed term, the level payment that exactly spends the balance uses the standard annuity-payment formula:

where PV is the present value (your starting balance), i is the interest rate per period (annual rate ÷ payments per year), and n is the total number of payments (years × payments per year). For a perpetuity - an income that never touches the principal - the formula collapses to the interest alone:

The difference is whether you spend the principal. A fixed term gives you a larger check but ends; a perpetuity gives you a smaller check that, in theory, never stops. If instead of an income you want to know what a future stream of payments is worth today - the reverse of this calculation - the Present Value Calculator and Future Value Calculator handle that direction.

How to use this calculator

You only need four inputs to get a realistic income figure. Work through the fields in order:

1. Starting balance: enter the lump sum you are converting to income - a retirement account, an inheritance, a settlement, or the premium of an insurance annuity.
2. Annual return / rate: use the rate the money will realistically earn while it is paid out. For an insurance annuity, that is the guaranteed credited rate; for a self-managed drawdown, a conservative expected return for the assets backing the income.
3. Payout frequency: choose monthly, quarterly, or annually. The calculator converts your annual rate and term into the correct number of periods.
4. Payout period: the number of years the income should last, or tick Perpetuity to pay only the earnings and keep the principal forever.

Press Calculate payout and read the payment per period at the top, the annual income in the summary, and the drawdown schedule to watch the balance fall year by year.

Who this calculator is for

This tool is for anyone trying to convert a one-time sum into a dependable stream of income. That includes:

• Retirees and near-retirees turning a 401(k), IRA, or pension lump sum into a monthly paycheck.
• Annuity shoppers sanity-checking the income an insurer quotes for a given premium and term.
• Recipients of a windfall - inheritance, lawsuit settlement, or business sale - who want a sustainable drawdown instead of spending it all at once.
• FIRE and early-retirement planners comparing a fixed-term drawdown against a perpetual, interest-only income - often alongside the FIRE Calculator.
• Anyone budgeting who wants to know the true monthly income a savings balance can support.

Key terms explained

• Principal (present value): the lump sum you start with and convert into income.
• Payout / distribution: the periodic check you receive - monthly, quarterly, or yearly.
• Fixed-term (period-certain) payout: level payments that spend the whole balance over a set number of years, ending at zero.
• Perpetuity: an income that pays only the interest, so the principal is never drawn down and the income can continue indefinitely.
• Drawdown: the gradual reduction of the balance as each payout returns part of your principal.
• Annuity-immediate: the convention used here, where each payment arrives at the end of the period.
• Accumulation vs. payout phase: a commercial annuity grows money in the accumulation phase, then converts it to income in the payout (annuitization) phase - this calculator models the payout phase.

Worked example: $500,000 over different horizons

Holding the rate at 5% and the frequency monthly, the same $500,000 produces very different checks depending on how long it must last:

• 10 years: about $5,303/month - a big income, but the money is gone in a decade.
• 20 years: about $3,300/month - a middle path that carries you through a typical retirement window.
• 30 years: about $2,684/month - a smaller check that stretches the balance across a long retirement.
• Perpetuity: about $2,083/month - the smallest check, but it never ends and the $500,000 stays intact.

The lesson: the longer you need the income to last, the smaller each payment, and the perpetuity is always the lowest because it spends none of the principal.

Worked example: the effect of the rate

Now hold the balance ($500,000) and term (20 years, monthly) constant and change only the rate:

• 3% return: about $2,773/month.
• 5% return: about $3,300/month.
• 7% return: about $3,877/month.

Each extra point of return is worth a few hundred dollars a month here - but chasing a higher return usually means taking more market risk, which a guaranteed insurance annuity is designed to remove. That trade-off between yield and certainty is the central decision in any income plan.

What changes the result the most

If you adjust the inputs and watch the payout move, a few levers dominate:

• Starting balance: the income scales almost directly with the lump sum - twice the principal, roughly twice the check.
• Payout period: a shorter term means a much larger payment because the balance is spent faster.
• Interest rate: a higher return lifts the payment, especially over long terms where compounding has more time to work.
• Fixed term vs. perpetuity: spending the principal (fixed term) always pays more per period than living off the interest alone.
• Frequency: a minor lever - monthly checks are slightly smaller per payment but similar in total annual income.

Tips for a durable income plan

• Be conservative with the rate. Planning around a guaranteed or modest return leaves a margin of safety if markets disappoint.
• Account for taxes. Withdrawals from tax-deferred accounts and the gain on commercial annuities are usually taxed as ordinary income, so your spendable income is less than the gross payout.
• Remember inflation. A level payment buys less each year; consider keeping a reserve, or a separate growing investment, to offset rising costs.
• Match the term to your needs. A period-certain payout may leave you with nothing if you outlive it; a lifetime annuity or a perpetuity addresses longevity risk.
• Keep an emergency buffer outside the income plan so an unexpected expense does not force you to break the schedule.

Fixed annuity vs. self-managed drawdown

The numbers on this page can describe two very different setups, and it is worth knowing which one you are modeling. With a commercial fixed annuity, you hand a lump sum to an insurer and they contractually guarantee a payout - often for a set term or for life. The rate is fixed, the income is predictable, and longevity risk shifts to the insurer; in return you pay fees, may face surrender charges if you change your mind, and generally give up access to the principal. With a self-managed drawdown, you keep the money invested and withdraw the calculated payment yourself. You retain control and any leftover balance passes to your heirs, but you carry the investment risk: if returns fall short of the rate you entered, the balance runs out sooner than planned. Use a guaranteed rate when modeling an insurer's quote, and a deliberately conservative rate when modeling your own portfolio.

Types of annuities, and which one this models

"Annuity" is an umbrella word for several very different products, and it helps to know where this calculator fits. A fixed annuity pays a guaranteed, level amount based on a rate the insurer locks in - that is the closest match to what this tool computes, and the figure you should compare against an insurer's quote. A variable annuity ties your payout to the performance of underlying investment subaccounts, so the income rises and falls with the market; this calculator cannot model that swing because it assumes a single fixed rate. An indexed annuity credits interest linked to a market index but with caps and floors, landing somewhere between fixed and variable. Annuities also differ by when income starts: an immediate annuity begins paying within about a year of the premium, which is the case this page describes, while a deferred annuity grows for years before the payout phase begins. Finally, the payout duration varies - a period-certain annuity pays for a set number of years (the fixed-term mode here), whereas a life annuity pays as long as you live regardless of how long that is. Use this calculator for fixed, immediate, period-certain math, and treat lifetime or variable products as a separate conversation with an insurer or advisor.

The 4% rule versus a fixed payout

Many retirees first meet the income question through the 4% rule, a popular rule of thumb that suggests withdrawing 4% of your portfolio in the first year and then adjusting that dollar amount for inflation each year afterward. It is built to make a stock-and-bond portfolio last roughly 30 years through a range of market histories. This calculator does something different and more precise: it solves the exact level payment that draws a balance to zero over a term you choose at a rate you choose, or - in perpetuity mode - the payment that lives entirely off the interest. The two approaches answer related but distinct questions. The 4% rule asks "what is a reasonably safe withdrawal that keeps pace with inflation?"; this tool asks "what level check exactly fits this balance, rate, and horizon?" A level payout typically starts higher than a 4% inflation-adjusted withdrawal but loses buying power over time because it never grows. If you specifically want to model a percentage-based, inflation-aware drawdown, the Retirement Withdrawal Calculator is the better fit; use this annuity payout calculator when you want a single, predictable number you can budget around.

How to read the drawdown schedule

The year-by-year table under the result is the most informative part of the output, and it rewards a close read. Each row shows the opening balance, the income paid out that year, the interest earned on the remaining balance, and the closing balance carried into the next year. Early on, the closing balance barely moves because interest replaces most of what you withdrew - in the $500,000 / 5% / 20-year example, the first year pays out about $39,600 yet the balance only falls by about $15,000, since the account earned close to $25,000 in interest. As the years pass, the balance shrinks, less interest is earned, and each level payout therefore eats further into principal, so the balance falls faster and faster until it reaches zero in the final year. Watching that acceleration is the clearest way to understand why a fixed-term payout cannot last "a little longer" if you stretch it - the math is front-loaded with interest and back-loaded with principal. In perpetuity mode the schedule looks completely different: the closing balance stays flat at your starting principal every single year, because you only ever withdraw the interest. Comparing the two schedules side by side makes the core trade-off concrete: spend the principal for a bigger check that ends, or preserve it for a smaller check that does not.

Inflation and the real value of your income

A level payout is comfortable to plan around because the dollar figure never changes - but that stability is also its weakness. Prices climb roughly 2% to 3% a year over the long run, so a check that feels generous today buys noticeably less a decade or two into retirement. At 3% annual inflation, a $3,300 monthly payment has the purchasing power of about $2,450 after 10 years and roughly $1,800 after 20 years, even though the number on the statement is identical. This calculator deliberately shows nominal dollars - the actual amounts paid - rather than inflation-adjusted ones, so you can match them to real account values and insurer quotes. To protect your standard of living, planners often suggest keeping a separate growing investment to top up the fixed income later, choosing a slightly shorter term so the larger early payments absorb future cost increases, or pairing a guaranteed base income with a flexible portfolio. If you want to see how inflation erodes a fixed sum over time before you lock in a term, the Inflation Calculator puts a number on the shrinkage.

Limitations and assumptions

This calculator is a planning estimate, not a quote or guarantee. Keep these assumptions in mind:

• It assumes a fixed, constant rate for the whole period; it does not model variable or market-linked returns that change year to year.
• It shows pre-tax, nominal dollars and does not adjust payments for inflation.
• It excludes insurance fees, riders, surrender charges, and commissions that reduce real annuity payouts.
• It uses an annuity-immediate convention (payment at the end of each period) and does not include a death benefit or refund feature.
• A fixed-term payout ends at zero - it does not protect against outliving your money the way a true lifetime annuity does.

How it compares to related options

This page answers "how much income can my lump sum pay?" If your question is slightly different, a sister tool fits better:

• To project whether you are on track to retire, use the Retirement Calculator.
• To model a percentage-based withdrawal (like the 4% rule) instead of a level payment, use the Retirement Withdrawal Calculator.
• To see how a balance grows with contributions and returns before you draw it down, use the Investment Calculator.
• To plan your 401(k) balance with an employer match, use the 401(k) Calculator.
• To estimate tax-free growth, use the Roth IRA Calculator.
• To see compounding on a fixed deposit, use the Compound Interest Calculator.

A commercial annuity from an insurer adds guarantees this calculator cannot: lifetime income you cannot outlive, optional survivor benefits, and protection from market losses - in exchange for fees and giving up control of the principal. A self-managed drawdown using these numbers keeps your money flexible but puts the investment and longevity risk on you. Many retirees blend both: an annuity or a perpetuity-style buffer to cover essential bills, and a flexible portfolio for everything else.

Sources

• U.S. Securities and Exchange Commission (Investor.gov) - Annuities: basics, types, fees and risks.
• Consumer Financial Protection Bureau (CFPB) - Planning for retirement income.
• Internal Revenue Service (IRS) - Publication 575, Pension and Annuity Income (taxation of payouts).