Annuity Calculator
Calculate annuity future value, payment, or present value instantly.
📊 What is an Annuity?
An annuity is a series of equal periodic payments made over a fixed number of periods at a constant interest rate. The word "annuity" comes from the Latin annuus (annual), but annuities can have monthly, quarterly, or annual payment intervals. Annuities appear throughout personal finance: mortgage payments, car loans, lease payments, pension income, and structured settlement payments are all annuities in the mathematical sense.
There are two fundamental types based on when payments occur. In an ordinary annuity (also called annuity-immediate), payments occur at the end of each period. Most loans and bonds are ordinary annuities. In an annuity-due, payments occur at the beginning of each period - rent, insurance premiums, and lease payments typically follow this pattern. An annuity-due has a slightly higher value than an equivalent ordinary annuity because each payment earns one extra compounding period.
In the insurance and retirement context, an annuity is a contract with an insurance company. You pay a lump sum (or series of premiums), and the insurer promises a guaranteed income stream for a fixed period or for life. This calculator focuses on the mathematical calculation of ordinary and annuity-due cash flows and can solve for future value, present value, or the periodic payment given the other variables.
📐 Annuity Formula
All annuity calculations derive from the time-value-of-money principle: a dollar today is worth more than a dollar in the future. The annuity formula aggregates the compounded future value (or discounted present value) of each individual payment. Annuity-due is always greater than ordinary annuity by exactly (1+r), reflecting the one extra period of compounding for each payment.
📖 How to Use This Calculator
Steps
💡 Example Calculations
Example 1 - Future Value of Monthly Savings
PMT = $500/month | Rate = 6%/year | 20 years | Ordinary Annuity
Example 2 - Present Value of Pension Income
PMT = $2,000/month | Rate = 5%/year | 20 years | Ordinary Annuity
❓ Frequently Asked Questions
🔗 Related Calculators
What is an annuity?
An annuity is a series of equal periodic payments made over a set number of periods. In finance, an annuity can refer to either an investment product that pays out income or the mathematical concept of a fixed stream of cash flows. Ordinary annuities (most common) have payments at the end of each period. Annuities-due have payments at the beginning. Examples include mortgage payments, lease payments, and retirement pension income.
What is the difference between an ordinary annuity and annuity-due?
In an ordinary annuity, payments occur at the end of each period (e.g., a monthly mortgage payment due at month-end). In an annuity-due, payments occur at the beginning of each period (e.g., rent paid on the 1st of the month). Because annuity-due payments are received one period earlier, the future value of an annuity-due is higher by a factor of (1+r) compared to an ordinary annuity with identical terms.
How do I calculate the present value of an annuity?
The present value (PV) of an ordinary annuity is PV = PMT × [1 − (1+r)^−n] / r, where PMT is the periodic payment, r is the periodic interest rate, and n is the number of periods. For example, a $1,000/month annuity for 10 years at 5%/year (0.4167%/month) has a PV of $1,000 × [1 − (1.004167)^−120] / 0.004167 = $94,281. This is the lump sum needed today to fund those payments.
What is a good annuity return rate?
Fixed annuity rates in the US (as of 2024) range from about 4% to 6% depending on term length and insurer. Multi-year guaranteed annuities (MYGAs) for 3–5 years often pay 4.5–5.5%. Variable annuities depend on the underlying investments (typically mutual funds). Income annuities (immediate and deferred) are priced based on prevailing interest rates and mortality tables rather than a stated return rate.
Is annuity income taxable?
Yes, but only the interest/growth portion is taxable, not the return of principal. For a non-qualified annuity (purchased with after-tax dollars), withdrawals are taxed on a last-in-first-out (LIFO) basis - the growth is withdrawn first and taxed as ordinary income. For a qualified annuity (held in an IRA or 401k), the entire withdrawal is taxable. The exclusion ratio applies to immediate annuities purchased with non-qualified funds, prorating the taxable and non-taxable portions.
What is the difference between an annuity and a pension?
A pension is a regular income from an employer (defined benefit) or from your own accumulated fund. An annuity is a product you purchase from an insurance company using a lump sum to receive regular income. In India, retiring NPS subscribers must use 40% of the corpus to buy an annuity from an empaneled insurer.
What annuity rate can I expect in India?
Annuity rates in India currently range from 5.5-7.5% per year, varying by annuity type, insurer, and the policyholder's age. Life annuity without return of purchase price offers the highest income. Rates are higher for older purchasers. Compare quotes from LIC, SBI Life, HDFC Life, and ICICI Pru.
Can I get a joint-life annuity for my spouse?
Yes. A joint-life annuity pays income for as long as either annuitant is alive. On the death of the first annuitant, income continues at 50-100% of the original amount to the survivor, depending on the plan chosen. Joint-life annuities provide income security for both spouses but offer lower initial income than single-life annuities.