ReckonBoxBoth sides of an annuity, in one tool
An annuity is a series of equal payments made at regular intervals, either into an account while you save or out of one while you draw it down. Most calculators do one phase and send you elsewhere for the other. This does both.
Depositing $500 a month for 20 years at 6%, on top of a $10,000 start, grows to about $264,122, of which $134,122 is interest. Run it the other way, and a $500,000 balance at 5% pays about $3,300 a month for 20 years, $791,947 in total, because the balance keeps earning while it is spent down.
The timing detail the field glosses over
An ordinary annuity pays at the end of each period, while an annuity due pays at the start, and that one difference is worth (1 plus the periodic rate) more. calculator.net offers the toggle but buries it, and AARP's annuity calculator does not mention it at all.
The reason is simple: a payment made at the start of the month earns a month of return the end-of-month payment misses, and that head start compounds over every payment. On the default deposit plan, switching to start-of-month deposits adds about $1,155 of growth over 20 years. Savings deposits and mortgage payments are ordinary; rent and insurance premiums are annuity due.
Accumulation versus payout
The accumulation phase grows deposits into a balance; the payout phase turns a balance into income over a fixed term. They are the two halves of an annuity's life, and the same rate and timing rules run through both.
| Phase | Inputs | Result on the defaults |
|---|---|---|
| Accumulate | $10,000 start, $500/mo, 20 yr, 6% | $264,122 balance |
| Payout | $500,000 balance, 20 yr, 5% | $3,300 a month |
A fixed-period payout runs out at the end of the term. That is the honest limit of this tool, and the difference from a lifetime annuity is the whole point of the next section.
Where the numbers come from
The accumulation phase uses the future value of an annuity: the deposits grow by P times ((1 plus i) to the power n, minus 1) divided by i, and the starting principal compounds alongside them. The payout phase inverts it with the present value of an annuity, solving for the level payment a balance supports over the term. An annuity due multiplies the ordinary result by (1 plus i), since every payment shifts one period earlier.
The interest rate is applied monthly, and the timing choice moves each payment to the start or end of its month. Fees, surrender charges, and taxes are left out, so the figures show the raw math of the annuity, not the net of an insurance product.
What this does not cover
This models a fixed-period annuity, where payments run for a set number of years and then stop, not a lifetime income annuity that pays until you die. An insurer prices lifetime income from mortality tables, prevailing interest rates, and its own margins, none of which a formula can reproduce without a quote. It also leaves out the surrender charges, which can reach 7% early on, riders, and tax treatment that a real annuity contract carries.
None of this is advice on whether an annuity suits you. It shows the arithmetic of accumulating and paying one down. For a lifetime income annuity, get a quote and compare it against these fixed-period figures, and talk to a fee-only adviser about the fine print.
Frequently asked questions
What is an annuity in finance? An annuity is a series of equal payments made at regular intervals, either into an account during an accumulation phase or out of one during a payout phase. Depositing $500 a month for 20 years at 6% grows to about $264,122, and a $500,000 balance at 5% pays about $3,300 a month for 20 years. This tool covers both phases.
What is the difference between an ordinary annuity and an annuity due? An ordinary annuity pays at the end of each period, while an annuity due pays at the start, so an annuity due is worth (1 plus the periodic rate) more. Mortgages and most savings deposits are ordinary; rent and insurance premiums are annuity due. On the default deposit plan, paying at the start of each month adds about $1,155 of growth over 20 years.
How much will monthly annuity deposits grow to? Depositing $500 a month for 20 years at a 6% annual return, on top of a $10,000 start, grows to about $264,122, of which $130,000 is your deposits and $134,122 is interest. This is the future value of an ordinary annuity, P times ((1 plus i) to the power n, minus 1) divided by i, plus the growth on the starting principal.
How much income will a lump sum pay as an annuity? It depends on the balance, the return, and the term. A $500,000 balance at a 5% return pays about $3,300 a month for 20 years, or $791,947 in total, since the balance keeps earning while it is drawn down. This is a fixed-period payout: the money runs out at the end of the term, unlike a lifetime annuity.
Is this a lifetime annuity calculator? No, it models a fixed-period annuity, where payments run for a set number of years and then stop. A lifetime income annuity pays until you die, and an insurer prices it from mortality tables and its own margins, which no formula can reproduce without a quote. For lifetime income, request a quote and compare it against the fixed-period figures here.
What is the future value of annuity formula? The future value of an ordinary annuity is P times ((1 plus i) to the power n, minus 1) divided by i, where P is the payment, i the periodic rate, and n the number of periods. For an annuity due, multiply that by (1 plus i). The present value, used for the payout phase, is P times (1 minus (1 plus i) to the power minus n) divided by i.