Annuity Payout Calculator

What the annuity payout calculator does

The annuity payout calculator turns a lump sum into fixed annual payments. Enter the balance available at the start of the payout phase, the annual return you expect the remaining money to earn, and the number of years the income should last. The tool works out the level yearly payment that spends the fund down to exactly zero over that period, with the balance not yet withdrawn still earning its return. It also shows the total paid over the term and how much of it is growth earned during the payout phase.

In retirement planning, this is the step that converts savings into income: how much a given balance can pay each year, and for how long.

How an annuity payout works

A payout annuity is a loan in reverse. With a loan, a lender gives you a lump sum and you repay it in level instalments of interest plus principal. Here you hold the lump sum, it earns a return, and you pay yourself a level amount each year, partly from that return and partly from your own capital.

Because the balance keeps earning while you draw it down, the payments can be larger than the lump sum divided by the number of years. The early years carry the most interest, since the balance is largest then. As the fund shrinks, more of each payment is your own capital, and the last payment empties the fund.

The three inputs

The payment is proportional to the starting balance: double the balance and the payment doubles. A higher return supports a bigger payment because the money still invested does more of the work, which is why the rate assumption matters and a cautious figure is wise. Spreading the same balance over more years lowers each payment; a shorter term raises it but uses the money up sooner. Change one input at a time to compare scenarios.

Reading the results

The main figure is the annual payment. The total paid out is always larger than the starting balance because the fund keeps earning as you withdraw, and the difference, shown as interest earned, is income you would lose by holding the money in a zero-return account and dividing it by the years. At a zero return, the payment is simply the balance divided by the years. As the return rises, so do the payment and the interest earned, sometimes to a large share of the total.

The return assumption

The return is the biggest uncertainty. Most people move to more conservative investments in the payout phase, because a sharp fall early in retirement can permanently cut the income a fund can support, so a cautious rate fits better here than the rate you used while saving. Run the calculator with a lower rate for a prudent floor and a higher one for an optimistic ceiling. Planning around the lower figure and treating anything extra as a bonus means you are less likely to have to cut your income if returns disappoint.

Limitations

The model assumes the same return every year, while real markets rise and fall. It assumes a fixed payment, while you may want income that rises with inflation, which needs a larger balance or a shorter term. And it assumes you know how long the income must last, which nobody can know exactly. Use the payment as a planning estimate, and compare how it changes with the balance, return and term when deciding how much to save, when to retire and how cautiously to invest.

This article is general information only and is not financial advice.

About This Annuity Payout Calculator

Use this annuity payout calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.