Annuity Payout Calculator: Monthly Income From a Lump Sum
Estimate the monthly income a lump sum could buy, two ways: a simple payout rate, or level payments that spend the balance down over a fixed period. Both are educational approximations of how an insurer might quote, not offers.
Payout style
The amount you would hand the insurer
What the insurer pays each year as a share of your premium
Monthly payout
$1,042
5.0% of $250,000, paid monthly
Annual payout
$12,500
before any taxes on the payments
Your premium back in
20 years
lifetime annuities keep paying beyond this point; that longevity pooling is the product
These figures are educational approximations of how an insurer might structure a payout, not a quote or an offer. Real annuity pricing varies with your age, sex, product type, prevailing interest rates, and any riders attached.
A lump sum becomes a paycheck
An annuity is a contract with an insurer: you hand over a premium, and it hands back a stream of payments. An immediate annuity starts paying within about a year, which is why it appeals to new retirees who want their savings to feel like a salary again. A deferred annuity grows quietly first and starts paying later, trading years of waiting for a larger check. Everything else in the annuity world is a variation on those two shapes.
The two formulas behind the check
The rate-based estimate is one multiplication: premium times payout rate, divided into monthly checks. On a $250,000 premium at a 5% payout rate, that is $12,500 a year, about $1,042 a month. The fixed-period estimate uses the standard annuity payment formula, the same math behind a mortgage payment run in reverse: it finds the level payment that exhausts principal and interest together over the horizon. The same $250,000 paid out over 20 years while earning 4% supports roughly $1,515 a month, about $363,600 in total. Notice the fixed-period check is larger: it deliberately spends the balance to zero, while a lifetime payout has to survive an unknown number of years.
The honest comparison: annuity vs. the 4% rule
The alternative to an annuity is keeping the portfolio and paying yourself, the approach behind the retirement withdrawal calculator and the 4% rule. Self-managed withdrawals keep the money liquid and leave whatever remains to your heirs, but you carry the market and longevity risk yourself. The annuity transfers those risks to an insurer and pays you for pooling them, but the trade is real: the lump sum stops being yours, and features that soften that (refunds, inflation adjustments, spousal continuation) come as riders whose fees quietly reduce the payout. Neither answer is wrong; they price the same risk differently.
When locking in income makes sense
The classic use is covering fixed essentials. Many retirees add up housing, food, and insurance, subtract Social Security (the inflation-adjusted lifetime annuity most people already have, estimable with the Social Security calculator), and consider annuitizing only the gap. That keeps the rest of the portfolio invested and liquid while making the monthly must-pays immune to market weather. Estimates first, quotes second, and a calm read of every rider before anything is signed.
Frequently asked questions
How is an annuity payout calculated?
Two common framings. Rate-based: the insurer pays a set percentage of your premium each year, often for life, so a 5% payout rate on $250,000 is $12,500 a year. Fixed period: the standard annuity payment formula sizes a level monthly payment so the principal plus interest is exhausted over a chosen number of years. This calculator models both as educational approximations.
What is the difference between an immediate and a deferred annuity?
An immediate annuity starts paying within about a year of your deposit, which suits retirees converting savings into income now. A deferred annuity grows first and pays later; because the insurer holds the money longer and you are older when checks begin, each dollar of premium typically buys a larger payment.
Why is an annuity payout rate higher than a bond yield?
Because part of every check is your own principal coming back. A payout rate blends return on your money with return of your money, plus longevity pooling in lifetime products. Comparing it directly to an interest rate flatters the annuity, which is worth remembering when a rate sounds too good.
What do I give up when I buy an annuity?
Mainly liquidity and flexibility. The lump sum is no longer yours to tap for emergencies, opportunities, or heirs unless you pay for riders that add features back, and riders lower the payout. You also rely on the insurer's ability to pay for decades, which is why state guaranty limits and insurer ratings matter.
How accurate are these numbers?
They are educational approximations, not quotes. Real offers depend on your age, sex, health in some products, current interest rates, the specific product, and the insurer's pricing. Use this to understand the shape of the trade, then compare actual quotes side by side before deciding anything.
Does this calculator save my numbers?
No. Everything runs in your browser and nothing you type is stored or sent anywhere.
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