How it works
The annuity payout calculator takes a lump sum, applies an annual return rate, and divides it into equal monthly payments spread across your chosen timeframe. Each month, you receive a fixed amount while the remaining balance continues to grow at your specified annual rate. By the end of the period, the balance reaches zero.
This approach is useful for retirement planning—it shows how much steady income a savings pot can generate. The calculation assumes consistent returns and regular monthly withdrawals; in reality, markets fluctuate and you may choose to adjust payments for inflation or unexpected needs.
The formula
Monthly Payout = (Lump Sum × r × (1 + r)^n) / (12 × ((1 + r)^n − 1))
where r is the monthly interest rate (annual rate ÷ 12) and n is the total number of months.
Worked example
Suppose you have a retirement lump sum of $500,000, expect 6% annual returns, and want income over 25 years.
Step 1: Convert annual return to monthly rate.
6% ÷ 12 = 0.5% = 0.005
Step 2: Calculate total months.
25 years × 12 = 300 months
Step 3: Apply the formula.
- (1 + 0.005)^300 = 4.4649
- Numerator: $500,000 × 0.005 × 4.4649 = $11,162.25
- Denominator: 12 × (4.4649 − 1) = 12 × 3.4649 = 41.579
- Monthly payout: $11,162.25 ÷ 41.579 = $268.53
You would receive $268.53 every month for 25 years. Over that period, you'll withdraw a total of about $96,670 in payments, while the remaining growth and your initial capital combine to fund the full 300 months.
Tips for realistic planning
Be conservative with return assumptions. Market returns vary year to year. Using a lower estimate (5–6% instead of 8–10%) provides a safety margin and reduces the risk of running out of money early.
Account for inflation. A fixed monthly payment loses purchasing power over time. Many retirees increase withdrawals by 2–3% annually to keep pace with living costs—this shortens how long the lump sum lasts.
Review regularly. If actual investment returns differ significantly from your assumption, recalculate your sustainable payout. A major market downturn early in retirement can have a larger impact than one later on.
Consider your lifespan. Payout periods should align with your life expectancy and goals. A 25-year horizon suits someone retiring at 65 who expects to live to 90; adjust based on your health, family history, and risk tolerance.
Don't forget taxes and fees. Investment returns are often quoted before tax. Depending on your location and account type, you may owe income tax on withdrawals or investment gains. Also account for any investment fees, which reduce your net return.
This is an estimate, not professional financial advice. Tax treatment, inflation, and market performance vary widely. Consult a financial advisor before making retirement withdrawal decisions.