Annuity Payout Calculator Online
Annuity Payout Calculator
Fixed Length Parameters
Results
You can withdraw
$5,551.03
monthly
Total of 120 payments
$666,123.01
Total Interest/Return
$166,123.01
Payment Composition
Starting Principal
75.1%
$500,000
Interest/Return
24.9%
$166,123
Annuity Balances
Annual Schedule
| Year | Beginning Balance | Interest/Return | Ending Balance |
|---|---|---|---|
| 1 | $500,000.00 | $28,976.19 | $462,363.89 |
| 2 | $462,363.89 | $26,654.88 | $422,406.47 |
| 3 | $422,406.47 | $24,190.39 | $379,984.56 |
| 4 | $379,984.56 | $21,573.90 | $334,946.16 |
| 5 | $334,946.16 | $18,796.03 | $287,129.89 |
| 6 | $287,129.89 | $15,846.83 | $236,364.41 |
| 7 | $236,364.41 | $12,715.72 | $182,467.84 |
| 8 | $182,467.84 | $9,391.50 | $125,247.04 |
| 9 | $125,247.04 | $5,862.25 | $64,496.98 |
| 10 | $64,496.98 | $2,115.32 | $0.00 |
Understanding Annuity Payouts
An annuity payout, also called the distribution phase or annuitization phase, is when you begin receiving regular payments from your accumulated annuity balance. This marks the transition from saving and accumulating wealth to converting that wealth into a steady income stream, typically during retirement.
During the payout phase, your annuity balance is systematically drawn down through periodic payments while the remaining balance continues to earn interest or investment returns. The insurance company calculates payment amounts based on several factors:
- Your total accumulated balance at the time of annuitization
- The expected rate of return on the remaining balance
- The payout period or payment amount you select
- Your age and life expectancy (for lifetime payout options)
- Whether you choose single-life or joint-survivor payments
- Any guaranteed period certain provisions
Important: Once you annuitize (begin the payout phase), you typically cannot change your payout option or access the remaining principal as a lump sum. This decision is usually irrevocable, making it crucial to carefully evaluate your options before annuitizing.
Qualified vs. Non-Qualified Annuities
Qualified Annuities
In the U.S., a tax-qualified annuity is used for qualified, tax-advantaged retirement plans such as IRAs, 401(k)s, 403(b)s, Keogh Plans, Thrift Savings Plans (TSPs), SEPs, and defined benefit pension plans.
Tax Treatment:
- Contributions made with pretax dollars (tax-deductible in contribution year)
- Earnings grow tax-deferred during accumulation
- All distributions taxed as ordinary income when withdrawn
- Subject to Required Minimum Distributions (RMDs) starting at age 73 (as of 2025)
Note: While qualified annuities must follow the tax rules of their retirement plan, they may still offer unique annuity features like guaranteed death benefits that protect beneficiaries even if markets decline.
Non-Qualified Annuities
Non-qualified annuities are purchased with after-tax dollars (money you've already paid income tax on). This creates different tax treatment during the payout phase.
Tax Treatment:
- Contributions made with after-tax dollars (not tax-deductible)
- Earnings grow tax-deferred during accumulation
- Only the earnings portion of distributions is taxed as ordinary income
- Principal portion returns tax-free (you already paid taxes on it)
- Not subject to RMDs at age 73 (more flexibility)
- No contribution limits (unlike 401k/IRA annual caps)
Taxation Method: Non-qualified annuity withdrawals use "last in, first out" (LIFO) accounting for annuities purchased after August 13, 1982. This means earnings come out first and are fully taxable until you've withdrawn all gains, then remaining withdrawals are tax-free principal.
đź’ˇ Key Difference in Payouts:
For qualified annuities, 100% of each payment is taxable. For non-qualified annuities, each payment includes both taxable earnings and tax-free principal return. The IRS uses an "exclusion ratio" to determine what portion of each payment is taxable versus tax-free based on your original investment.
The Three Phases of an Annuity
Every annuity progresses through distinct phases, each with its own characteristics and rules:
1. Accumulation Phase
The accumulation phase is the period when you contribute money and build your annuity's value. This phase always comes first and begins after the initial investment.
- Contributions: Can be a lump sum or series of payments over time
- Growth: Assets grow tax-deferred through interest or investment returns
- Duration: Can last decades for younger investors or be very short for immediate annuities
- Flexibility: Some contracts allow additional contributions; others are closed after initial deposit
Example: A 40-year-old invests $50,000 and adds $500 monthly for 25 years. This entire 25-year period is the accumulation phase, building wealth for eventual retirement income.
2. Annuitization Phase
The annuitization phase is a single, critical event—not an extended period. It's the moment you convert your accumulated balance into a guaranteed income stream.
- Decision point: You select your payout option (fixed length, fixed payment, lifetime, etc.)
- Conversion: For variable annuities, accumulation units convert to annuity units
- Irrevocable: Once annuitized, you typically cannot change your mind or access the lump sum
- Calculation: Insurance company calculates payments based on your age, balance, and chosen option
⚠️ Important: Not all annuities require annuitization. Some allow systematic withdrawals without converting to a fixed payout structure, preserving access to your principal.
3. Payout Phase (Distribution Phase)
The payout phase is when you receive regular payments from your annuity. This calculator helps you model this phase.
- Frequency: Payments can be monthly, quarterly, semi-annual, or annual
- Duration: Depends on option chosen (fixed period, lifetime, or until balance exhausted)
- Taxation: Each payment may be partially or fully taxable depending on annuity type
- Adjustments: Some annuities offer cost-of-living adjustments (COLAs) to combat inflation
Example: At age 65, you annuitize your $500,000 balance choosing a 10-year fixed period with monthly payments. For the next 10 years, you'll receive $5,511.20 monthly (assuming 6% return), systematically drawing down the balance to $0.
Annuity Payout Options
When you're ready to begin receiving income, you must choose a payout option. Each option has unique advantages and risks. This choice is usually irrevocable, so understanding your options is critical.
1. Fixed Length (Period Certain)
Payments are guaranteed for a specific time period you select (e.g., 10, 15, or 20 years), regardless of how long you live.
âś“ Advantages:
- Predictable income for a known duration
- Higher payments than lifetime options (shorter guaranteed period)
- If you die early, remaining payments go to beneficiaries
- Not dependent on life expectancy calculations
âś— Risks:
- Payments stop after the period ends, even if you're still alive
- Risk of outliving your income if you live longer than expected
- No protection against longevity risk
Best For: Retirees who have other income sources (Social Security, pension) and want guaranteed income for a specific period, such as bridging to Social Security or covering a mortgage payoff.
2. Fixed Payment Amount
You select the dollar amount you want to receive each period, and payments continue until your annuity balance is depleted.
âś“ Advantages:
- Control over your monthly budget and cash flow
- Flexibility to adjust to your spending needs
- Can calculate exactly how long your money will last
- Remaining balance goes to beneficiaries if you die early
âś— Risks:
- Easy to choose payments that are too high or too low
- Risk of depleting the account if you live longer than expected
- No guaranteed lifetime income protection
- Must actively manage to avoid running out
Best For: Retirees who want control over their monthly income and have the discipline to manage withdrawal rates responsibly. Works well when combined with other guaranteed income sources.
3. Lump-Sum
Withdraw the entire account value in a single payment, giving you complete access to your money immediately.
âś“ Advantages:
- Maximum flexibility—use money however you want
- Can invest elsewhere or pay off debts
- Useful for major expenses or emergencies
- Full control over asset management
âś— Risks:
- Huge tax hit—entire taxable portion due in one year
- No guaranteed lifetime income
- Easy to spend too quickly
- Lose insurance company guarantees and longevity protection
Best For: Generally not recommended for retirement income due to severe tax consequences. May be appropriate for emergencies, major medical expenses, or if you have terminal illness.
4. Life Only
Receive payments for as long as you live, regardless of how long that is. Payments stop when you die, with nothing left for beneficiaries.
âś“ Advantages:
- Highest monthly payment of all lifetime options
- Complete protection against longevity risk (outliving your money)
- Simple to understand—guaranteed income for life
- Can live to 110 and still receive payments
âś— Risks:
- If you die early, all remaining value is lost (kept by insurance company)
- No legacy for heirs—nothing passes to beneficiaries
- Payment amount fixed by life expectancy—can't control amount
- Can't change your mind once annuitized
Best For: Single retirees with no dependents or heirs, who want maximum monthly income and are primarily concerned with not outliving their savings. Not ideal if leaving a legacy is important.
5. Joint and Survivor
Payments continue for as long as either you or your spouse lives. Often pays 100% to the survivor, but can be structured for 50%, 66%, or 75% to the survivor.
âś“ Advantages:
- Protects both spouses from outliving savings
- Surviving spouse maintains income for life
- Can extend to more than two people (e.g., dependent child)
- Peace of mind for married couples
âś— Risks:
- Lower monthly payments than single-life (covers two lives)
- If both die early, remaining value lost
- Nothing left for non-spouse beneficiaries
- More complex if spouse has significantly different age/health
Best For: Married couples who want to ensure the surviving spouse has guaranteed income for life. Essential when the annuity represents a significant portion of retirement income and both spouses depend on it.
6. Life with Period Certain
Combines lifetime payments with a guaranteed minimum period (e.g., 10 or 20 years). If you die during the certain period, beneficiaries receive the remaining guaranteed payments.
âś“ Advantages:
- Lifetime income protection (won't outlive payments)
- Guarantees some legacy if you die early (period certain)
- Balances longevity protection with legacy goals
- Beneficiaries protected during certain period
âś— Risks:
- Lower payments than straight life only (paying for the guarantee)
- If you die after the certain period, nothing remains for heirs
- More expensive than life-only due to minimum guarantee
Best For: Retirees who want lifetime income security but also want to ensure heirs receive something if they die prematurely. Good middle-ground option balancing longevity protection and legacy planning.
⚠️ Important Note About This Calculator:
This calculator models Fixed Length and Fixed Payment Amount options only. These are period-certain options where the duration is defined or calculable. For lifetime options(Life Only, Joint and Survivor, Life with Period Certain), you'll need actuarial tables and mortality assumptions that depend on your specific age, health, and the insurance company's calculations.
Early Withdrawals and Penalties
Withdrawing money from an annuity before the age of 59½ can result in significant penalties on top of regular income taxes. Understanding these rules is crucial to avoid costly mistakes.
Standard Early Withdrawal Penalty
If you withdraw funds before age 59½, you'll face a 10% IRS early withdrawal penalty on the taxable portion (earnings), plus regular income taxes on those earnings. This applies to both qualified and non-qualified annuities.
Example Calculation:
- Withdraw $50,000 from non-qualified annuity at age 55
- $30,000 is taxable earnings, $20,000 is tax-free principal
- 10% penalty: $30,000 Ă— 10% = $3,000 penalty
- Income tax (assume 24%): $30,000 Ă— 24% = $7,200 tax
- Total cost: $10,200 in penalties and taxes on $50,000 withdrawal
Exceptions to the 10% Penalty
The IRS provides several exceptions where you can withdraw before 59½ without the 10% penalty (though income taxes still apply):
âś“ Disability
If you become totally and permanently disabled as defined by the IRS.
âś“ Death
Beneficiaries can withdraw without the 10% penalty after the annuitant's death.
âś“ Series of Equal Payments (72(t))
Structured withdrawals under IRS Rule 72(t) for at least 5 years or until age 59½, whichever is longer.
âś“ Terminal Illness
Many contracts waive penalties for withdrawals due to diagnosed terminal illness.
âś“ Medical Expenses
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
âś“ Long-Term Care
Some contracts allow penalty-free withdrawals for qualified long-term care expenses.
Free Withdrawal Provisions
Most annuity contracts allow you to withdraw a portion of your account value each year without incurring surrender charges (typically 10% of account value). However, this doesn't protect you from the IRS 10% early withdrawal penalty if you're under 59½.
Example: Your $100,000 annuity allows 10% free withdrawals annually. You can withdraw $10,000 without a surrender charge from the insurance company, but if you're 55 years old, you'll still owe the IRS 10% penalty plus income taxes on the earnings portion.
Gains-Only Withdrawal Option
Some annuity contracts allow you to withdraw only the gains (not principal) without incurring surrender charges, even outside the free withdrawal provision. This can be useful for:
- Rebalancing your portfolio without penalties
- Taking required minimum distributions from qualified annuities
- Accessing growth while preserving principal
Note: The IRS 10% penalty and income taxes still apply if you're under 59½.
1035 Exchange: Tax-Free Annuity Transfers
A 1035 Exchange, named after Section 1035 of the Internal Revenue Code, allows you to transfer funds from one annuity to another (or from certain life insurance policies to annuities) without triggering immediate taxation. This is a powerful tool for updating outdated contracts without tax consequences.
Why Use a 1035 Exchange?
- Better rates: Move to an annuity with higher guaranteed rates or better return potential
- Lower fees: Escape high-fee variable annuities for lower-cost options
- Improved benefits: Access better death benefits, living benefits, or payout options
- Changing needs: Your situation has changed and you need different features
- Company strength: Move to an insurance company with better financial ratings
- Lifestyle changes: Convert life insurance to annuity income if you no longer need coverage
IRS-Approved 1035 Exchanges
Only these transfers qualify as tax-free 1035 exchanges:
âś“ Valid Exchanges
- Annuity → Annuity
- Annuity → Annuity with long-term care benefits
- Life insurance → Another life insurance policy
- Life insurance → Annuity (cannot reverse)
- Life insurance → Endowment contract
- Endowment → Annuity
- Endowment → Another endowment (with same or earlier payout date)
âś— Invalid Exchanges (Taxable)
- Annuity → Life insurance (not allowed)
- Changing ownership (owner, insured, or annuitant must stay the same)
- Exchanging to different people's contracts
- Cashing out one policy and buying another (must be direct transfer)
⚠️ Important 1035 Exchange Rules
- Direct transfer: Funds must transfer directly from one insurance company to another; don't take possession of the money
- Same owner/annuitant: The owner, insured, and annuitant must be identical on both contracts
- Full replacement: Can't cherry-pick beneficiaries or split ownership
- Timing matters: Process must complete within 60 days to avoid tax consequences
- Surrender charges still apply: The old contract may impose surrender penalties even though it's a tax-free exchange
Partial 1035 Exchanges
You can exchange part of an annuity to another annuity contract while keeping the rest in the original contract. The basis (your original investment) is split proportionally between the two contracts.
Example:
You have a $50,000 non-qualified annuity with a $40,000 basis (you contributed $40,000, it grew to $50,000). You do a partial 1035 exchange of $25,000 (half) to a new annuity:
- Old annuity: Now has $25,000 value with $20,000 basis
- New annuity: Has $25,000 value with $20,000 basis
- If you later withdraw $10,000 from either contract, only $5,000 would be taxable (the growth portion)
180-Day Rule: You cannot take distributions from either the old or new contract within 180 days of a partial 1035 exchange, or the IRS may treat it as a taxable distribution rather than an exchange.
đź’ˇ Before Doing a 1035 Exchange:
- Compare total costs including surrender charges on the old contract vs. benefits of the new one
- Verify the new contract actually offers better features, not just higher commissions for the agent
- Check the financial strength ratings of both insurance companies
- Understand you're starting a new surrender period (typically 5-10 years)
- Consult with a fee-only financial advisor or tax professional
- Get everything in writing from both insurance companies
How to Use This Calculator
This calculator helps you model two common annuity payout scenarios: fixed length (calculating payment amounts) and fixed payment (calculating duration). Choose the tab that matches your situation.
Fixed Length Tab
Use this when you know how long you want payments to last and want to calculate the payment amount.
Step 1: Enter Starting Principal
This is your accumulated annuity balance at the time you begin taking distributions. This should be the value shown in your most recent statement or projected value at retirement.
Step 2: Enter Interest/Return Rate
For fixed annuities, use the guaranteed rate from your contract. For variable annuities, use a conservative growth estimate (4-6% is typical). Remember that your remaining balance continues earning returns during the payout phase.
Step 3: Set Years to Payout
Choose how many years you want guaranteed payments. Common choices: 10 years (bridge to Social Security), 20 years (general retirement income), or 30 years (longer retirement horizon).
Step 4: Select Payout Frequency
Choose how often you want payments: monthly (most common, matches typical expenses), quarterly, semi-annually, or annually.
Step 5: Review Results
The calculator shows your payment amount, total you'll receive, and how much comes from interest vs. principal. Review the annual schedule to see year-by-year balance reduction.
Fixed Payment Tab
Use this when you know how much income you need each period and want to calculate how long it will last.
Step 1: Enter Starting Principal
Same as fixed length—your current or projected annuity balance when distributions begin.
Step 2: Enter Interest/Return Rate
Expected return on your remaining balance during payout phase. Be conservative—overestimating can lead to running out of money sooner than expected.
Step 3: Enter Payment Amount
The dollar amount you want to receive each period. Base this on your budget needs, but be aware that larger payments deplete the balance faster.
Step 4: Select Payout Frequency
Match this to your budgeting needs and how often you want to receive payments.
Step 5: Analyze Duration
The calculator shows how many years your annuity will last at this payment rate. If it says "forever," your payment is too small—the interest earned exceeds your withdrawals, so the balance never depletes.
⚠️ Important Assumptions & Limitations:
- Fixed returns: This calculator assumes a constant rate of return. Actual variable annuity returns fluctuate with market performance.
- No fees included: Results don't account for management fees, M&E charges, or other costs. Subtract fees from your return rate for more accurate projections.
- No inflation adjustment: Payments shown are nominal dollars. A $5,000 monthly payment today won't buy as much in 20 years due to inflation.
- Tax implications ignored: Results show gross amounts before taxes. Your net spendable income will be lower after income taxes.
- Period-certain only: This calculator doesn't model lifetime payouts, which require actuarial mortality tables.
đź’ˇ Pro Tips:
- Run multiple scenarios with different interest rates (optimistic, realistic, pessimistic)
- For fixed payment mode, try various payment amounts to find the sweet spot between comfort and longevity
- Consider inflation—build in 2-3% annual payment increases to maintain purchasing power
- Coordinate with Social Security timing—annuity payouts can bridge the gap until you claim SS benefits
- Don't rely solely on period-certain payouts—consider adding a lifetime income option for longevity protection
- Compare calculator results with actual quotes from your insurance company (they may differ due to fees)
Related Calculators & Resources
Explore these related calculators for comprehensive retirement income planning:
Annuity Calculator (Accumulation)
Model the growth phase of your annuity with regular contributions and compound interest. Essential for planning how much you'll have available when you're ready to begin distributions.
Retirement Calculator
Project total retirement savings from all sources including 401(k), IRA, Social Security, pensions, and annuities. Determine if you're on track for your retirement goals.
Social Security Calculator
Calculate optimal Social Security claiming age and coordinate SS benefits with annuity income for maximum lifetime income security.
Pension Calculator
Compare pension options including lump sum vs. monthly payments, single-life vs. joint-survivor benefits, and coordinate with annuity payouts.
401(k) Calculator
Model 401(k) accumulation with employer matching, compare against annuity options, and plan rollovers from 401(k) to annuities.
RMD Calculator
Calculate Required Minimum Distributions from qualified annuities and coordinate with other retirement account RMDs starting at age 73.
đź“š Educational Resources:
- Check your state insurance department website for annuity consumer guides
- Visit FINRA.org for investor education on annuity products and sales practices
- Read SEC.gov's investor publications on variable annuities
- Consult with a fee-only fiduciary financial advisor before annuitizing
- Review your annuity contract's payout options section carefully
- Request illustrations from your insurance company showing different payout scenarios
Disclaimer: This calculator provides estimates for planning purposes only. Actual annuity payouts depend on your specific contract terms, insurance company calculations, fees, and market performance (for variable annuities). Always verify results with your insurance company and consult with qualified financial and tax professionals before making annuitization decisions.