Annuity Payout Calculator

How the Fixed Payout Amount Is Calculated

This calculator solves the inverse of the annuity accumulation problem: instead of asking "what does this balance grow into," it asks "what fixed payment, drawn every month, exactly depletes this balance to zero by the end of the payout period" — while the remaining balance keeps earning your assumed rate of return the whole time.

$$M = P \times \frac{r(1+r)^n}{(1+r)^n - 1}$$

An Interesting Aside: The Loan Payoff Formula, in Reverse

This is exactly the same formula used to calculate a fixed-rate loan's monthly payment — the standard amortization formula that turns a principal, a rate, and a term into one fixed payment. That's not a coincidence or an approximation; it's the same equation because it's answering the same underlying question, just with the direction of the cash flow flipped. A loan payment is the fixed amount that pays off a balance you owe, at a fixed rate, over a fixed term. An annuity payout is the fixed amount that pays out a balance you own, at a fixed rate, over a fixed term. The formula has no concept of "debt" or "asset" — it only knows a starting balance, a rate, a number of periods, and that the balance should be exactly zero at the end. Whichever direction the money is flowing, the math is identical.

Worked Example: 500,000 Dollars Over 20 Years at 4%

Using the calculator's own default inputs — a 500,000-dollar starting principal, a 4% annual rate of return, paid out over 20 years — the fixed monthly payout comes to roughly 3,029.90 dollars. Over 240 months, that's a total of about 727,176 dollars paid out — meaning roughly 227,176 dollars more than the original principal came from the balance continuing to earn a return throughout the payout period, not just from spending down the original 500,000 dollars.

Fixed-Period Payout vs. Lifetime Income

This calculator solves for a payout over a chosen fixed number of years, ending at a zero balance. That's a different product from a life annuity, which instead guarantees payments for as long as you live, calculated using life-expectancy tables rather than a fixed term — a life annuity can keep paying well past the point a fixed-period calculation like this one would have reached zero (or stop earlier, if the annuitant doesn't live as long as expected), because the insurer is pooling that longevity risk across many contract holders.

Common Annuity Payout Mistakes

Assuming the payout amount is simply the principal divided evenly by the number of payments is the most common — that ignores the fact that the remaining balance keeps earning a return throughout the payout period, which is why the actual sustainable payment is higher than a flat division would suggest. Overestimating the assumed rate of return during payout is another real risk — if the account's actual return runs below what was assumed here, the balance can run out before the chosen period ends. Confusing this fixed-period calculation with a lifetime income guarantee is a third — see the section above on how those two products differ.

Annuity Payout Terms You Should Know

Payout Phase — the period during which an annuity distributes money back to the annuitant, the opposite of the accumulation phase.

Annuitization — converting an annuity's accumulated balance into a stream of periodic payments, which can be for a fixed period or for life.

Life Annuity — a payout structured to continue for the annuitant's remaining lifetime, calculated using life-expectancy assumptions rather than a fixed term.

Amortization — the general mathematical process of paying down (or paying out) a balance in fixed periodic installments that include both principal and a rate component.

This calculator provides estimates for educational and planning purposes only, based on a fixed-rate, fixed-period model. It is not financial advice, does not model a lifetime income annuity, and does not account for fees or taxes. Consult a licensed financial advisor or insurance professional for guidance specific to a real annuity contract.