Annuity Calculator
How much steady monthly income could a lump sum provide? Enter a starting amount, an assumed return and a payout period, and we'll estimate the monthly income that draws the balance smoothly down to zero — plus how much of it comes from growth.
Your numbers
New to this? Leave the defaults — they're realistic — and just change the starting amount and payout period.
Where your income comes from
How much of the total payout is your original lump sum versus growth earned along the way.
What "income from a lump sum" means
If you've built up a pile of savings — at retirement, from a sale, or an inheritance — a natural question is: how much could I pay myself each month from this, and for how long? This calculator answers a specific version of that: given a starting amount, an assumed steady return, and a number of years, what fixed monthly income would spend the balance down to exactly zero at the end?
The money keeps earning while you draw it, which is why the total income you collect is larger than the lump sum you started with. In the default example, a $500,000 balance pays out about $877,000 over 25 years — the extra ~$377,000 is investment growth earned along the way.
Important: this is an illustrative drawdown estimate, not a guaranteed-income product. A real annuity is a contract you buy from an insurance company that pays a guaranteed income — often for the rest of your life — priced on your age, current interest rates and the options you choose. A commercial annuity's payout will differ from this estimate, and unlike this model it won't simply run out after a set number of years.
How we calculate it
The math is the same time-value-of-money formula behind a loan payment — just pointed the other way. Your lump sum is the "loan," and the monthly income is the "payment" that pays it off (to zero) over the period, with the balance earning interest the whole time.
P = starting amount (the lump sum)
r = monthly return = annual return ÷ 12
n = number of months = payout years × 12
Worked example (the defaults above):
- Start with
P= $500,000, return 5% sor= 0.4167%/month. - Payout 25 years means
n= 300 months. - Monthly income ≈ $2,923.
- Over 300 months that's about $877,000 of total income, ~$377,000 of it from growth.
If the return is 0%, the formula simplifies to the lump sum divided evenly across the months.
What changes your monthly income
- Starting amount. Linearly — twice the lump sum, twice the income, all else equal.
- Payout period. The big lever in the other direction: stretching the same balance over more years means a smaller monthly amount.
- Assumed return. A higher return means the balance earns more while you draw it, supporting larger payments — but assuming too high a return is risky if markets disappoint.
- The 4% rule, for contrast. A popular alternative rule of thumb is to withdraw about 4% of savings the first year and adjust for inflation, aiming to make the money last ~30 years without necessarily spending it all. This calculator instead deliberately empties the balance over the period you pick.
Glossary
- Annuity
- Broadly, a stream of regular payments. Commercially, an insurance contract that pays guaranteed income, often for life. This calculator models a self-managed drawdown, not an insurance product.
- Principal
- The starting lump sum you draw income from.
- Drawdown
- Spending an investment balance down over time by taking regular withdrawals.
- Payout period
- The number of years over which the income is paid; here, the balance is fully spent by the end.
- The 4% rule
- A retirement rule of thumb for sustainable withdrawals — roughly 4% of savings the first year, inflation-adjusted thereafter.
- Immediate vs. deferred annuity
- An immediate annuity starts paying right away; a deferred annuity grows first and pays later. Both are insurer products, distinct from this estimate.
Frequently asked questions
How much monthly income will $500,000 give me?
Drawing a $500,000 balance down to zero over 25 years at a 5% return provides about $2,923 a month — roughly $877,000 of total income, about $377,000 of it from growth. A higher return or shorter period raises the figure; a longer period lowers it.
How long will my savings last?
That's the flip side: for a given withdrawal and return, a fixed balance lasts a set number of years. This calculator instead fixes the payout period and solves for the income that empties the account exactly at the end.
What is the 4% rule?
A retirement rule of thumb: withdraw ~4% of savings the first year, then adjust for inflation, aiming to last ~30 years. It differs from this calculator, which assumes a fixed return and deliberately spends the balance to zero over your chosen period.
Is this the same as buying an annuity?
No. This is an illustrative drawdown estimate. A commercial annuity is an insurance contract that guarantees income — often for life — priced on your age, interest rates and options. A real annuity's payout will differ from this estimate.
What return should I assume in retirement?
There's no single right answer. Retirees often assume something conservative because they're drawing the money down — frequently low-to-mid single digits, depending on their mix of stocks, bonds and cash. Lower assumptions are safer but produce a smaller estimated income.
What happens to the money at the end of the payout period?
In this model, nothing is left — the balance is drawn down to exactly zero. To preserve principal or leave an inheritance, withdraw less than this figure. For income guaranteed not to run out however long you live, that's what a lifetime annuity from an insurer provides.
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