Annuity Calculator

An annuity is simply a stream of equal payments at equal intervals. The two building-block formulas are:

• PV = PMT × (1 − (1+r)^-n) / r
• FV = PMT × ((1+r)^n − 1) / r

Both assume payments at the end of each period (ordinary annuity). If payments happen at the beginning (annuity due), each payment gets one extra period of compounding or discounting, so multiply both PV and FV by (1+r).

To solve for PMT, algebraically invert: PMT = PV × r / (1 − (1+r)^-n) for a given PV, or PMT = FV × r / ((1+r)^n − 1) for a given FV. This calculator always applies the (1+r) factor automatically when you pick 'annuity due'.

• Use PRESENT VALUE when you know the payment stream and want today's lump-sum equivalent — pricing a bond coupon strip, valuing a pension, or figuring out how much principal backs a mortgage payment.
• Use FUTURE VALUE when you want to know what a regular contribution grows to — a sinking fund, a savings plan, or an annuity's accumulated balance at retirement.
• Use PAYMENT when you have a target (mortgage principal, retirement nest egg, bond face value) and want the equal payment that hits it — this is the same math as a loan amortization schedule.

The future value of an ordinary annuity (payments at period end) is FV = PMT × [((1+r)ⁿ − 1) ÷ r], where r is the periodic rate and n the number of payments.

Investing $500 a month for 20 years at a 5% annual rate grows to about $205,517, of which $120,000 is your own deposits and the rest is compound growth.

This calculator computes future value, present value, payment, or term depending on which mode you choose.

The present value of an annuity is what a stream of future payments is worth today: PV = PMT × [1 − (1+r)⁻ⁿ] ÷ r.

It answers 'how much do I need now to fund a fixed payment for N years?' — central to pricing pensions, structured settlements, and retirement income.

A higher discount rate lowers the present value. This is the mirror image of future value and underpins how insurers price income annuities.

Timing matters. An ordinary annuity pays at the end of each period (most loans, bonds); an annuity due pays at the beginning (rent, many insurance premiums).

Because each payment in an annuity due sits one period earlier, it earns slightly more interest — its value equals the ordinary-annuity value times (1 + r).

Choosing the wrong timing convention is a common source of small but real calculation errors.

As insurance products, annuities come in several types.

• Fixed annuities pay a guaranteed rate.
• Variable annuities invest in sub-accounts with returns that rise and fall (and carry higher fees).
• Indexed annuities tie returns to a market index with caps and floors.

The SEC cautions that variable and indexed annuities can be complex and costly. This calculator handles the underlying time-value math; the product type determines the actual rate and guarantees.

An immediate annuity begins paying income right after a lump-sum purchase — useful for retirees converting savings into guaranteed income.

A deferred annuity accumulates value for years before payouts begin, growing tax-deferred.

The choice depends on whether you need income now or are still building it. Immediate annuities are essentially the present-value calculation in reverse: a lump sum today buys a fixed stream of future payments.

To find the payment a given sum can fund, rearrange the present-value formula: PMT = PV × r ÷ [1 − (1+r)⁻ⁿ]. This is the same math behind loan amortization.

For example, it determines how large a monthly income a retirement lump sum can provide over a set number of years at a given rate.

The calculator's payment mode solves for PMT from the balance, rate, and term.

As FINRA explains, annuities are used to convert a lump sum into predictable lifetime or fixed-term income, addressing the risk of outliving savings (longevity risk).

The trade-off is reduced liquidity and, for many products, fees. Financial planners often suggest annuitizing only part of a portfolio to cover essential expenses while keeping the rest invested.

The core appeal is a guaranteed income floor that pensions once provided.

According to the IRS, annuities grow tax-deferred, but withdrawals of gains are taxed as ordinary income, and pre-59½ withdrawals may face a 10% penalty like other retirement accounts.

Variable and indexed annuities can carry high fees:

• mortality and expense charges
• administrative fees
• surrender charges for early withdrawal

The SEC advises reading the prospectus carefully. Compare total costs, since fees materially reduce the returns the time-value math projects.

Common mistakes include:

• mixing up ordinary annuity and annuity-due timing
• ignoring high fees on variable/indexed products
• annuitizing too much and sacrificing liquidity
• overlooking surrender charges
• assuming projected returns are guaranteed when they are not

Understand the product type, compare all fees, use the correct payment timing, and treat an annuity as one part of a plan rather than a whole retirement strategy.