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Thomas J. Brock, CFA®, CPA
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- Updated: December 22, 2022
- This page features 1 Cited Research Article
What Can Our Immediate Annuity Calculator Tell You?
Use this immediate annuity calculator to estimate how much an annuity would pay out each month. To do so, the calculator needs information such as your age and how much you expect to put down for a premium on the annuity.
Immediate annuities skip the accumulation phase that most annuities use to grow the starting premium balance. Instead, this type of annuity immediately converts your single lump-sum premium into a stream of income payments within a year of purchase.
For people nearing retirement age, immediate annuities can be a helpful supplement to other retirement savings vehicles. Payments generated from this type of annuity are guaranteed for your lifetime, so you can’t outlive them.
To find out how much you could receive from an immediate annuity, simply enter your information in the box above. You’ll need the dollar amount of your premium, which must be paid in a single lump sum. You’ll also enter your age and sex to determine your life expectancy, a key element in annuity income calculations.
How Do You Calculate Annuity Payments?
Calculating annuity payments can be tricky because insurance companies have the authority to set their own rates and contract terms.
To get the best result from an annuity calculator, it helps to know the average annuity rates for the type of annuity you plan to buy. There are several variables that go into calculating annuity payments, including:Annuity Payment Variables
- PO = Principal
- r = Annual interest rate
- n = Number of payments per year
- t = Number of years of payments
Interest rates will vary depending on the type of annuity and the provider. You can customize the number of payments per year in your contract, but most annuitants receive payouts once per month or 12 times per year.
The formula for calculating an annuity payout looks something like this:
How Much Do Annuities Typically Pay Out Per Month?
To find out how much annuities typically pay out per month, let’s look at two examples. In each example, we’ll plug in the terms of the annuity to the formula shown above to calculate what a typical monthly payment might be.
Example 1: How Much Does a $100,000 Annuity Pay Per Month?
For this example, we’ll calculate the payouts for a 20-year fixed annuity with a $100,000 principal and a 2% annual growth rate.
Thus, at a 2% growth rate, a $100,000 annuity pays $505.88 per month for 20 years.
This example doesn’t include all the possible variables of individual annuity contracts, but having a firm grasp on this basic formula will make you more confident going into a discussion with a financial planner or insurance agent.
Example 2: How Much Does a $500,000 MYGA Pay Per Month?
For a $500,000 multi-year guaranteed annuity (MYGA) with a 2.85% interest rate, the monthly payments for a 10-year period would be approximately $4,795.
Because MYGAs have fixed rates for a set number of years, we used the same formula in this example, but we plugged in different numbers for the principal (500,000), interest rate (2.85) and the number of years (10).
Again, we haven’t taken contract specifics, such as sex or additional riders, into account because we don’t know exactly how the insurance company will weigh these. We do know, however, that women generally receive lower payments than men do because women have longer lifespans and that riders add to the price of an annuity.
How Much Income Do I Need To Retire?
When you’re planning for retirement, it’s important to have a good idea of how much income you’ll need while you’re not working and where that money will come from. The first step is making a retirement budget to better understand what your financial needs will look like.
To make a retirement budget, you’ll need to identify what your expenses and income will look like in retirement. After comparing your expenses to your income, you can determine whether you’ll need to adjust your spending or find other sources of retirement income.
This process is like building a normal budget, but there are some other factors to consider when budgeting for retirement. You’ll have to account for things like inflation, which can reduce the purchasing power of your savings, or changes in Social Security benefits.
You should also consider that your expenses now may not be the same as your expenses at retirement. For example, older Americans spend more on health care costs than younger people do. Retirees may also need to pay for long-term care or financially support their adult children or grandchildren.
Frequently Asked QuestionsWhat is an annuity?An annuity is an insurance product that converts a premium into a stream of guaranteed lifetime income. Annuities provide modest growth along with principal protection and are often used to supplement retirement savings.How do I determine how much income I will need in retirement?To determine how much income you will need in retirement, you’ll need to build a retirement-focused budget. Identify expenses and sources of income and adjust your spending as needed.How much do annuities pay out in retirement?Annuity payments vary depending on the interest rates, the size of the premium and the annuitant’s life expectancy. Using an annuity calculator can give you an estimate of what your monthly payments might be.Please seek the advice of a qualified professional before making financial decisions.Last Modified: December 22, 2022
1 Cited Research Article
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Lumen Learning. (n.d.). Payout Annuities: Mathematics for Liberal Arts. Retrieved from https://www.coursehero.com/study-guides/math4libarts/payout-annuities/
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