Annuity Calculator
Turn a lump sum into the fixed monthly income it can provide over a set term.
How to use the Annuity Calculator
- Enter the lump sum you are starting with.
- Enter the annual return the balance earns while it pays out.
- Enter how many years you want the income to last.
- See the fixed monthly income and the total paid out.
Payment = P × r ÷ (1 − (1 + r)^−n), r monthly rate, n months
About the Annuity Calculator
An annuity turns a pot of money into a steady income. This calculator works out the fixed monthly payment a lump sum can provide over a chosen number of years, assuming the balance keeps earning a return as it is drawn down to zero. It is the mirror image of a loan: instead of borrowing a sum and repaying it in instalments, you hold a sum and pay it out to yourself in instalments, with interest working in your favour along the way.
Because the remaining balance keeps earning, the total you receive is larger than the lump sum you started with — the interest column shows exactly how much extra. Stretching the payout over more years lowers the monthly income but increases that interest; a shorter period pays more each month but for less time. Seeing both figures makes the trade-off between income and duration concrete.
This models a simple fixed-term drawdown at a steady rate. Real insurance annuities differ: they may pay for life rather than a fixed term, include guarantees or inflation protection, and carry fees, all of which change the payment. To go the other way — how long a pot lasts at a chosen withdrawal — use the retirement drawdown calculator, and for the saving phase the retirement savings calculator.
Frequently asked questions
Is this a life annuity?
No. It models a fixed-term payout that draws the lump sum down to zero over the years you choose. A life annuity from an insurer pays for as long as you live and is priced differently, with guarantees and fees.
Why is the total paid out more than the lump sum?
Because the remaining balance keeps earning a return while it is being paid out. That interest is added to what you receive, so the total exceeds your starting amount.
What return should I use?
Use a rate you expect the balance to earn safely during the payout, often lower than a growth portfolio since the money is being spent. Real returns vary, so treat the income as an estimate.