Immediate Annuity Calculator

Q: How much monthly income does $100,000 generate?

At a 5% annual rate over 20 years, $100,000 generates approximately $660/month. A life annuity payout depends on age and gender (actuarial factors) - for a 65-year-old male, $100,000 might generate $550–$650/month for life (as of 2024). Actual payout rates vary by insurer, your age, current interest rates, and the type of payout chosen.

Q: What is the difference between life annuity and period-certain annuity?

A life annuity pays income for as long as you live, no matter how long. If you die one month after purchase, payments stop (unless you added a period-certain feature). A period-certain annuity guarantees payments for a specified number of years (e.g., 10, 20, 25 years), regardless of whether you are alive - if you die before the term ends, payments continue to your beneficiary. Life annuities pay more per month but carry longevity risk for the insurer.

Q: When should I buy an immediate annuity?

An immediate annuity is most valuable when: you're retired and need guaranteed income now; you lack a pension and want longevity protection; interest rates are relatively high (locking in better payouts); you've reached age 70–75 (older buyers get better rates due to shorter expected lifespan); or you want to simplify retirement income and eliminate sequence-of-returns risk. It's less suitable if you need liquidity or anticipate large near-term expenses.

Q: Are immediate annuity payments taxable?

For a non-qualified immediate annuity (purchased with after-tax funds), each payment consists of a taxable interest portion and a tax-free return-of-principal portion - the exclusion ratio determines the split. For a qualified immediate annuity (purchased with IRA/401k funds), the entire payment is taxable as ordinary income. Consult a tax advisor for the exact exclusion ratio for your specific annuity.

Find out how much monthly income you'll receive from an immediate annuity.

💰 What is an Immediate Annuity?

An immediate annuity, also called a Single Premium Immediate Annuity (SPIA), is an insurance contract you purchase with a single lump-sum payment that begins paying guaranteed income almost immediately - typically within 30 days of purchase. You give the insurance company your premium, and in return you receive a guaranteed stream of payments for either a specified number of years (period-certain) or for the rest of your life (life annuity). Immediate annuities are the simplest and most efficient way to convert accumulated savings into predictable retirement income.

The appeal of an immediate annuity is certainty: unlike withdrawing from an investment portfolio, you cannot outlive your income or suffer from sequence-of-returns risk. The insurance company bears both the investment risk (guaranteeing the payout regardless of market performance) and the longevity risk (continuing payments even if you live to 100). In exchange for this certainty, you surrender liquidity - once purchased, most immediate annuities cannot be surrendered or redeemed for the original premium.

Immediate annuity payout rates are heavily influenced by prevailing interest rates. When interest rates are high (as in 2022–2024), annuity payouts are more attractive because the insurer can invest your premium at higher rates and pass on better income. Understanding the payout calculation - which is simply the standard loan amortization formula applied in reverse - helps you compare offers from different insurers and determine whether an immediate annuity fits your retirement income plan.

📐 Immediate Annuity Formula

Monthly PMT = PV × r(1+r)ⁿ / [(1+r)ⁿ − 1]

PV = Premium (lump sum paid)

r = Monthly interest rate (annual rate / 12)

n = Total months of payout (years × 12)

PMT = Monthly income payment

This is identical to the mortgage payment formula - the insurance company is essentially "amortizing" your lump sum over the payout period. A higher rate r produces a higher monthly payment; a longer payout period n produces a lower monthly payment. For life annuities, actual payouts depend on actuarial tables and the insurer's profit margin, but this formula provides a close approximation.

📖 How to Use This Calculator

Steps

Enter the premium - the lump sum you'll pay for the immediate annuity (or a rollover amount from a retirement account).

Enter the interest rate - use the rate quoted by your insurer, or the current 10-year Treasury yield + 1–2% as a market estimate.

Enter the payout years - for period-certain, enter the term. For life annuity, use life expectancy minus your current age (e.g., 20–25 years for a 65-year-old).

Click Calculate to see monthly and annual income, total lifetime receipts, and interest earned.

💡 Example Calculations

Example 1 - $200,000 at 5% for 20 Years

Premium = $200,000 | Rate = 5% | 20 years

r = 5/12/100 = 0.4167%; n = 240 months

PMT = $200,000 × (0.004167 × 1.004167²⁴⁰) / (1.004167²⁴⁰ − 1) = $1,320/month

Annual income = $15,840 | Total received = $316,800 | Interest = $116,800

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Example 2 - $500,000 at 5.5% for 25 Years

Premium = $500,000 | Rate = 5.5% | 25 years

Monthly income = $3,069/month | Total received = $920,700 | Interest = $420,700

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❓ Frequently Asked Questions

What is an immediate annuity (SPIA)?+

A Single Premium Immediate Annuity (SPIA) is an insurance contract you purchase with a lump sum that immediately begins paying guaranteed income. You pay the insurer once and receive fixed monthly payments for either a set number of years or for the rest of your life. SPIAs are the most efficient way to convert savings into guaranteed retirement income.

How much monthly income does $100,000 generate?+

At 5% annual rate over 20 years, $100,000 generates approximately $660/month. A life annuity payout for a 65-year-old male might generate $550–$650/month for life (2024 rates). Actual payouts depend on insurer, age, current interest rates, and payout type.

What is the difference between life annuity and period-certain annuity?+

A life annuity pays for as long as you live. A period-certain annuity guarantees payments for a specified number of years regardless of whether you are alive - if you die before the term ends, payments continue to your beneficiary. Life annuities pay more per month but carry longevity risk for the insurer.

When should I buy an immediate annuity?+

An immediate annuity is most valuable when you're retired and need guaranteed income now; you lack a pension and want longevity protection; interest rates are relatively high; you've reached age 70–75 (older buyers get better rates); or you want to eliminate sequence-of-returns risk. It's less suitable if you need liquidity or anticipate large near-term expenses.

Are immediate annuity payments taxable?+

For a non-qualified immediate annuity (after-tax funds), each payment consists of a taxable interest portion and a tax-free return-of-principal portion. The exclusion ratio determines the split. For a qualified immediate annuity (IRA/401k funds), the entire payment is taxable as ordinary income.

🔗 Related Calculators

📌 Quick Tips

💡An immediate annuity (SPIA) is the simplest way to convert a lump sum into guaranteed lifetime income - you give the insurer your lump sum and they pay you every month for life or a fixed term.

💡Annuity payout rates are heavily influenced by prevailing interest rates - buying an immediate annuity when rates are high locks in better income for life.

💡A joint-and-survivor annuity pays slightly less per month than a single-life annuity but continues paying to your spouse after your death.