Annuity Calculator (2026)

Future value answers "what will my saving become". Present value answers "what is this stream of payments worth today", and that is the question that settles real decisions.

The lottery choice is the standard illustration. A $10 million jackpot paid as $400,000 a year for 25 years against a lump sum of perhaps $5.5 million. The instalments total more, but the present value of that stream at any reasonable discount rate is close to the lump sum — which is exactly how the lump sum was calculated.

The same logic applies to a structured settlement, a pension offering a lump-sum buyout, or a business deciding between a lease and a purchase. In every case you are comparing money now against money later, and present value is the only honest way to do it.

The discount rate carries all the weight. A high rate says future money is worth much less, favouring the lump sum. A low rate favours the stream. Choosing it is a judgement about what you could otherwise earn and how certain the payments are — not a lookup.

A stream from the US Treasury deserves a low discount rate. The same stream from a company that might not exist in fifteen years deserves a much higher one, and that difference is precisely what the rate is for.

Retirement drawdown —

how long a pot lasts at a given withdrawal, or what withdrawal a pot supports — a present-value question with the sign reversed.

Lottery lump sum versus instalments —

compare the present value of the stream against the cash option, then consider tax, which usually differs between them.

Pension buyout —

employers offer a lump sum instead of a monthly pension. Present value tells you whether the offer is fair; longevity and inflation protection tell you whether it is wise.

Structured settlement —

companies offer cash for future settlement payments, frequently at effective discount rates well above 10%. Computing the present value yourself is the fastest way to see what is being charged.

Lease versus buy —

a lease is an annuity of payments; buying is a lump sum. Comparing them requires discounting one to match the other.

If you arrived here thinking about a product an adviser suggested, the arithmetic above will not tell you whether it is a good idea. These are contracts, and the terms matter more than the headline rate.

A single premium immediate annuity is the simplest: you hand over a lump sum and receive an income for life starting now. It is genuine longevity insurance — the one thing no investment portfolio can guarantee — and its pricing is relatively transparent because there is little to hide behind.

A deferred annuity accumulates first and pays later. Fixed ones credit a stated rate. Variable ones invest in subaccounts and carry both market risk and, frequently, high fees. Indexed ones credit a return linked to a market index subject to caps, participation rates and spreads that can be adjusted by the insurer, and which usually mean you receive materially less than the index return.

The costs to ask about explicitly: the surrender charge and how many years it runs, the mortality and expense fee, the administrative fee, the cost of any rider, and the underlying fund fees on a variable contract. Combined charges of 2% to 3% a year are common and are the main reason these products are criticised.

The other thing worth understanding is that the guarantee is only as good as the insurer. Annuities are not FDIC-insured; they are backed by the issuing company and, to limited amounts, by state guaranty associations.

Rate and period mismatch is by far the most common. A 6% annual rate with monthly payments is 0.5% per period over n months — not 6% over n years. Getting this wrong produces answers that are wrong by a factor of ten or more, and they look plausible enough to go unnoticed.

Timing is the second. Assuming payments at the end when they are made at the beginning understates every result by one period of interest.

Ignoring inflation is the third and the most consequential for retirement planning. A fixed $2,000 a month looks adequate today and buys roughly half as much after 24 years at 3% inflation. Level annuity income is not the same as level purchasing power, and a fixed lifetime annuity quietly loses value every year you live.

And treating a projection as a promise. This arithmetic assumes a constant rate and payments that always arrive. Neither is true of a real investment, and the second is not true of a payer who might default.