Annuity Payout Calculator
Annuity Payout Calculator
What an immediate annuity pays each month, quarter, half-year or year for the rate an insurer quotes you, how long the payouts take to add up to the price, and what a level payout is worth after inflation.
Annuity payout
$10,00,000 at a quoted 7% a year, paid monthly, with 4% inflation
Payout, break-even and today’s money
- P, r
- the purchase price and the annuity rate quoted for your mode, as a decimal
- f
- payouts a year: 12, 4, 2 or 1, each paid at the end of its period
- i
- inflation a year. Each payout is divided by (1 + i) raised to the time it is paid, in years
Worked example
$10,00,000 at a quoted 7% a year, paid monthly, with 4% inflation
A year: 10,00,000 × 7% = $70,000; a month: ÷ 12 = $5,833
Payouts to add up to the price: 10,00,000 ÷ 5,833 = 171.4, so 172 payments, 14.3 years
After 20 years of 4% inflation the same $5,833 buys what $2,662 buys today, 54% less
The 20 years' payouts, $14,00,000, are worth $9,68,640 in today's money — less than the price
What the annuity rate is, and is not
An immediate annuity turns a lump sum into an income for life. You pay the insurer a purchase price, and it pays you a fixed amount each month, quarter, half-year or year. The rate the insurer quotes depends on your age, the option you choose, and the payout mode: a published Indian example, LIC’s Jeevan Akshay-VII, pays in arrears and offers a higher rate for less frequent payouts. That is why this page asks for the rate quoted for your chosen mode rather than dividing one yearly rate by twelve. The default is an example; enter your own quote.
The rate is not an interest rate. In a plain life annuity, each payout is partly your own money coming back, and nothing is returned at death. At 7% the payouts take 14.3 years to add up to the price, so what you get out overall depends on how long you live. Counted in today’s money at 4% inflation, they take 22 years. The return-of-purchase-price option pays the price back to your nominee at death, and in exchange the rate is lower. This page does not invent that rate; enter the one you are quoted for each option and compare.
Most annuities sold in India pay a level amount that is not linked to inflation. Some insurers offer an option that rises by a fixed step, such as a simple 3% a year, but that is fixed in advance, not tied to prices. At 4% inflation a level payout loses 54% of its buying power in 20 years; the chart shows the payouts added up in money and in today’s money against the price. Annuity income is taxed as your income in India in the year you receive it; check the current rules where you live.
In India, NPS subscribers must use part of the corpus to buy an annuity at exit; see the NPS calculator. For income drawn from your own investments instead, which keeps the capital but carries market risk, see the SWP calculator and the safe withdrawal rate calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How is an annuity payout calculated?
Purchase price × the annuity rate ÷ the number of payouts a year. $10,00,000 at 7% paid monthly is $70,000 a year, $5,833 a month.
Why is the monthly payout less than the yearly rate divided by 12?
Because insurers quote a slightly lower rate for monthly payouts than for yearly ones: you get the money earlier. Use the rate quoted for your mode; a quarterly rate of 7.2% on $10,00,000 pays $18,000 a quarter.
Does an annuity keep up with inflation?
Usually not. Most annuities in India pay a level amount for life. At 4% inflation, $5,833 a month buys what $2,662 buys today after 20 years.
Is annuity income taxable?
In India, yes: it is taxed as your income in the year you receive it. Rules differ by country and change, so check the current ones.
Life annuity or return of purchase price?
A life annuity pays a higher rate but returns nothing at death. Return of purchase price pays a lower rate and gives the price back to your nominee. Compare the two quotes; which suits you depends on whether you want the most income or to leave the capital.
Related calculators
References
- Life Insurance Corporation of India. LIC’s Jeevan Akshay-VII (UIN 512N337V05), sales brochure. An example of how an Indian immediate annuity is quoted: annuity options including life annuity, life annuity with return of purchase price, and an annuity increasing at a simple 3% a year; yearly, half-yearly, quarterly and monthly modes paid in arrears, with higher rates for less frequent modes. Cited as an example of the terms, not as a recommendation.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Present and future values, annuities, and nominal versus real rates of interest.
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.