How annuity payouts work
While you take payments, the remaining balance keeps earning interest. Each payment is part interest and part principal, and the balance reaches zero at the end of the payout period. For example, $500,000 at 5% paid monthly over 25 years gives about $2,923 a month, or about $877,000 in total.
Types of annuities
- Immediate annuity: you pay a lump sum and income starts within a year.
- Deferred annuity: your money grows first and pays out later.
- Fixed vs variable: fixed annuities pay a set rate; variable annuities depend on investments.
- Period certain vs lifetime: period-certain annuities pay for a set number of years (what this calculator models); lifetime annuities pay as long as you live.
The 4% rule comparison
Many retirees use a withdrawal rule instead of buying an annuity: take about 4% of your savings in the first year and adjust for inflation. On $500,000 that is $20,000 a year. Plan your retirement number with the FIRE calculator or the retirement calculator.
Last reviewed October 2026.
Frequently asked questions
What does an annuity calculator do?
It works out the regular payment a lump sum can provide for a set number of years at a given interest rate, or how long your money will last if you withdraw a set amount. It uses the same math insurers and financial planners use for fixed-period annuities.
How is the annuity payment calculated?
For payments at the end of each period: payment = balance × r ÷ (1 − (1 + r)^−n), where r is the rate per period and n the number of payments. For payments at the start of each period (an annuity due), the payment is that result divided by (1 + r).
Does this match a quote from an insurance company?
It estimates a period-certain payout. Real annuity products, especially lifetime annuities, are priced using life expectancy, fees and the insurer's rates, so quotes will differ. Use this to understand the math and compare offers.
What happens if I withdraw only the interest?
If your withdrawal is equal to or less than the interest earned each period, the balance never runs out. The calculator will tell you the money lasts indefinitely.
Is annuity income taxable?
Usually, at least partly. With a non-qualified annuity bought with after-tax money, part of each payment is a tax-free return of your principal. Annuities inside IRAs or 401(k)s are generally fully taxable as ordinary income.