Annuity Calculator
Monthly income a lump sum provides over a term, the lump sum needed for an income, or how long a sum lasts — with escalation, deferral, annuity rate, perpetuity income and rate sensitivity.
| Total paid out | — |
|---|---|
| Of which interest / growth | — |
| Payment in the final year | — |
| Annuity rate (first-year income ÷ lump sum) | — |
| Perpetuity (income that never depletes capital) | — |
| If the rate were 1 point lower / higher | — |
| Balance every 5 years | — |
In short
A fixed-term annuity pays the level (or escalating) amount whose present value at the rate equals the lump sum — the loan formula in reverse. 500,000 at 4.5% over 25 years provides about 2,754 a month level, or 2,248 rising 2% a year; a perpetuity that never touches capital pays 1,875 a month. Lifetime insurer annuities pay by age and health, roughly 5.5–7% a year at 65 in 2026.
Who this is for: Retirees and savers converting a lump sum into regular income, or sizing the sum an income needs.
Annuity arithmetic and the lifetime-annuity question
- Payment from a lump sum: the level payment whose present value at the rate equals the lump sum — the loan formula in reverse. Escalating payments start lower and rise each year.
- Annuity due (paid at the start of each month) gives slightly lower payments than an ordinary annuity because money leaves sooner.
- Deferral lets the lump sum grow before payments begin — a deferred annuity or a retirement several years away.
- Annuity rate is first-year income ÷ purchase price; insurers' lifetime rates look higher than a fixed-term calculation because they expect to pay for fewer years than the longest-lived buyers.
- Use the retirement withdrawal calculator to stress-test drawdown instead; this tool assumes a fixed, known rate.
See also: Life Insurance Needs Calculator (DIME).
Assumptions
- Payment = lump sum (grown through any deferral) ÷ present value of one unit over the term at the monthly-equivalent rate, with annual escalation and ordinary/due timing.
- Lump sum mode = present value of the requested payments; years mode iterates months until the balance is exhausted.
- Perpetuity = lump sum × annual rate ÷ 12; sensitivity reruns at ±1 point.
Worked example
Income about 2,248 a month in year 1, rising to about 3,615 by year 25; total paid out about 864,000, of which 364,000 is growth. Annuity rate 5.39% in year 1. A perpetuity — income without ever touching capital — would be 1,875 a month. At 3.5% the income falls to about 2,010; at 5.5% it rises to about 2,500. Without the 2% escalation the level income would be about 2,754.
Frequently asked questions
How much income will 500,000 give me?
About 2,250 a month for 25 years at 4.5% with 2% annual increases, or 2,750 level; a lifetime insurer annuity at 65 would quote in the region of 2,100–2,900 a month depending on options.
What is a good annuity rate?
In 2026 level lifetime annuities for a 65-year-old pay roughly 5.5–7% of the purchase price a year; inflation-linked and joint-life options pay less. Compare several providers.
Annuity or drawdown?
An annuity guarantees income for life and removes investment risk; drawdown keeps the capital flexible and can leave an inheritance but can run out. Many people combine the two.
Is the lump sum needed for an income taxable?
The calculation is gross; tax on annuity income depends on your country and whether the purchase was from a pension or savings.
How much do I need for 2,000 a month for 20 years?
About 319,000 at 4.5%, or 376,000 if the income rises 2% a year.
What is a deferred annuity?
One bought now with payments starting years later; the lump sum grows in the meantime, so a smaller sum buys the same income.
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