Annuity payout calculator

How much will an annuity pay each month?

Payment = balance × r ÷ (1 − (1 + r)^−n), where r is the rate per period and n the number of payments. $100,000 at 5% paid monthly for 20 years gives $659.96 a month.

What is an annuity due?

Payments at the start of each period instead of the end. Each payment is smaller by a factor of 1 + r — $657.22 in the example — because the money earns interest for less time.

Does the balance run out?

Yes — this calculator spreads the whole balance plus interest over the period, so the account reaches zero with the last payment.

What rate should I use?

The rate the remaining balance earns. Real returns can vary; the calculator assumes the same rate throughout.

Is this the same as an insurance annuity?

Not exactly — insurance products set payments by their own terms and fees, and lifetime annuities also depend on life expectancy. This is the math of a fixed-term payout.

How is an annuity different from a loan payment?

The arithmetic is the same, with the direction reversed. A loan pays down a balance you owe; an annuity payout draws down a balance you own. In both cases the payment is the level amount that brings the balance exactly to zero after n payments at the periodic rate r.

Why does a longer payout period lower the payment?

The same balance is spread over more payments, and the interest the remaining balance earns pays part of each one. Doubling the time does not halve the payment, because the money keeps earning interest while it waits.

What if the balance earns nothing?

At a 0% rate the payment is just the balance divided by the number of payments. Interest raises the payment you can take from the same starting amount.

How the calculation works

An ordinary annuity pays at the end of each period. With a balance B, a periodic rate r (the annual rate divided by the number of payments per year) and n payments, the level payment is B × r ÷ (1 − (1 + r)^−n). Each period the balance earns r, the payment comes out, and after n payments the balance is exactly zero. For an annuity due, with payments at the start of each period, the payment is the ordinary payment divided by (1 + r). The calculator assumes a constant rate and a fixed term. Fees, taxes, inflation and the chance of living beyond the term are not modeled.

Worked example

A balance of $250,000 earns 4.5% and is paid out over 25 years. With monthly payments, r = 4.5% ÷ 12 and n = 300, so the payment at the end of each month is $1,389.58. That is $416,874 in all, of which $166,874 is interest earned along the way. If the payments are made at the start of each month instead, each is $1,384.39, a little lower, because every payment is taken one month sooner, so the balance has less time to earn interest and a smaller payment is enough to use it up. Paid once a year at year end, the same balance gives $16,859.76 per year, which is more than the 12 monthly payments added together ($16,674.97). Each dollar arrives later than under monthly payments, so it has longer to earn interest first.

Common mistakes

• Using the annual rate for monthly payments. The rate must be the rate per payment period. Dividing the annual rate by 12 for monthly payments (and by 4 for quarterly) is the standard simplification used here.
• Confusing payout with a guaranteed income for life. This calculator ends at zero after the stated term. A lifetime annuity from an insurer is priced from mortality tables and its own fees, so quotes will not match.
• Ignoring inflation and taxes. A level payment buys less each year, and withdrawals from pre-tax accounts are usually taxable income.

Sources and related calculators

Method: the present value of an ordinary annuity and the annuity-due adjustment, as given in introductory finance and mathematics-of-finance texts. Related: retirement withdrawal calculator, compound interest calculator and present value calculator.

Estimates for planning only — not financial or tax advice. Your lender, plan or tax professional decides. How we check our calculators.