Annuity Calculator

Mathematically, an annuity is just a series of equal cash flows discounted (or accumulated) at a periodic rate. Use the same formulas to value a mortgage payment stream, a pension annuity, a savings plan, or any retirement income product. The math is one of the cornerstones of finance.

Annuity products from insurance companies use this math but layer on contract features: lifetime income guarantees, death benefits, market participation with floors and caps. Each feature has a cost — typically expressed as a fee against the contract or an adjustment to the credited rate. Understanding the product structure separately from the math is essential.

An immediate annuity (Single-Premium Immediate Annuity, or SPIA) is purchased with a lump sum and begins paying within a year. The math is essentially the inverse of a mortgage: the insurer gives you a fixed monthly payment for life (or for a term) in exchange for the lump sum. SPIAs are the cleanest, lowest-fee annuity product and the textbook tool for adding longevity protection to a retirement plan.

Deferred annuities accumulate value over years before payments begin. Variable annuities — where the underlying value follows mutual-fund-like sub-accounts — and indexed annuities — where credited interest is tied to a market index with caps and floors — fall in this category and have historically carried high fees (1.5–3.5% all-in) that meaningfully reduce returns over decades.

A SPIA pays more per dollar than a self-managed portfolio aiming for the same income — sometimes substantially more — because the insurer pools mortality. Annuitants who die early subsidize those who live long, allowing the insurer to pay a higher rate than any individual could safely withdraw from their own savings.

This "mortality credit" rises with age: a 65-year-old buying a SPIA captures a smaller longevity premium than an 80-year-old, because more of the annuitant's expected payments are still ahead. For retirees worried about outliving savings, deferred-income annuities (DIAs) and Qualified Longevity Annuity Contracts (QLACs) — purchased at 65 but starting payments at 80 or 85 — concentrate the mortality credit and provide cheap longevity insurance.

A SPIA or QLAC fits when: you have meaningful retirement savings but lack pensions, you're worried about outliving savings, or you want a guaranteed income floor that frees the rest of the portfolio for growth. They're a hedge against longevity risk, not a return-maximizing investment.

Variable and indexed annuities sold during accumulation often fail to fit. Their tax deferral is duplicative if you have available 401(k)/IRA space, their fees compound badly, and the lifetime-income riders are usually mispriced for the buyer once all costs are included. The exception: high earners who've maxed all other tax-advantaged accounts and want additional tax-deferred space, willing to tolerate the fees for that benefit.