Annuity Calculator
Calculate future growth value or fixed retirement payouts from an annuity, supporting ordinary annuities and annuities due.
Understanding Annuities in Financial Planning
An annuity is a financial contract structured to either accumulate funds through periodic contributions (the accumulation phase) or distribute a guaranteed stream of income over a specified retirement duration or lifetime (the annuitization / payout phase).
For deeper analysis and related planning, you can also explore our SIP Calculator and Retirement / Investment Calculator.
Ordinary Annuity vs. Annuity Due
The timing of each cash flow fundamentally influences total compounding growth:
- Ordinary Annuity: Payments occur at the end of each period (such as quarterly stock dividends or salary 401(k) contributions). The last payment earns zero interest during the final period.
- Annuity Due: Payments occur at the beginning of each period (such as apartment rent or life insurance premiums). Every payment undergoes one additional compounding cycle, resulting in: FV(Annuity Due) = FV(Ordinary Annuity) × (1 + r)
Retirement Income Payout Formula
When an investor enters the retirement distribution phase with a lump sum ($PV$), the periodic payout ($PMT$) that liquidates the balance over $n$ periods at rate $r$ is:
Because the remaining balance continues earning interest while withdrawals take place, total lifetime withdrawals exceed the original lump sum deposit.
Frequently Asked Questions
What is the difference between an ordinary annuity and an annuity due?
An ordinary annuity makes or receives payments at the end of each period (e.g. standard mortgage or loan payments). An annuity due makes or receives payments at the beginning of each period (e.g. lease rent payments or life insurance premiums), earning one extra compounding cycle of interest.
What is an immediate annuity versus a deferred annuity?
An immediate annuity begins paying out guaranteed income almost immediately after a lump sum deposit (typically within 1 to 12 months). A deferred annuity allows invested principal to accumulate interest tax-deferred over several years before payout begins.
How is the monthly payout calculated on a fixed annuity?
The periodic payout uses the present value amortization equation: PMT = PV × [r(1 + r)^n] / [(1 + r)^n - 1], where PV is the lump sum, r is the monthly interest rate, and n is total months.
Disclaimer: Commercial insurance annuities often charge administrative fees, mortality expenses (M&E), and surrender charges for early liquidations. Consult a licensed fiduciary financial planner before committing capital to long-term insurance annuity contracts.