An immediate annuity turns a lump sum into income that starts almost at once. This calculator finds the level monthly payment a lump sum can fund over a set number of years. The part not yet paid out keeps earning.
Insurers also sell lifetime income. Here's how to judge a quote, and what inflation, tax and the insurer can do to it.
What your lump sum buys
FINRA describes an immediate annuity as a contract: you pay an insurer a lump sum in exchange for regular income. A fixed one starts paying often within 30 days and always within 13 months, FINRA says.
Payments can come monthly, quarterly, twice a year or yearly. On a fixed contract, they stay the same whatever the markets do, as in this calculator. A variable immediate annuity's payments fluctuate.
FINRA notes the trade-off: fixed payments typically trail the returns of stock and bond portfolios in a bull market.
Lifetime income or a set number of years?
FINRA says payments may last a specified period, such as 25 years. Or they may last your lifetime, or yours and your spouse's. This calculator prices only the fixed period: after the last payment, nothing is left.
Under a standard lifetime contract, FINRA says, your spouse or heirs aren't entitled to payments after you die. A death benefit or certain riders change that.
A period-certain benefit, for example, keeps paying a beneficiary for a set time after your death. FINRA says a contract with this rider, or any other death benefit, will cost more.
Why a 7.9% payout isn't a 7.9% return
Here's what $200,000 pays at a steady 5% over five periods:
| Payout period | Monthly income | Total paid out | Of which interest |
|---|---|---|---|
| 10 yr | $2,121.31 | $254,557 | $54,557 |
| 15 yr | $1,581.59 | $284,686 | $84,686 |
| 20 yr | $1,319.91 | $316,779 | $116,779 |
| 25 yr | $1,169.18 | $350,754 | $150,754 |
| 30 yr | $1,073.64 | $386,512 | $186,512 |
Over 20 years, you collect $15,839 a year ($1,319.91 × 12), or 7.9% of the lump sum. Yet on average, $10,000 a year is just your own money coming back: $200,000 ÷ 20.
The interest averages $5,839 a year ($116,779 ÷ 20), only 2.9% of what you paid. Over 10 years, the same 5% shows up as a 12.7% yearly payout.
So judge an offer by the interest rate inside it, not its payout percentage. For a fixed-period offer, enter its lump sum and period, then adjust the return until the income matches.
How long would you need to live?
A lifetime quote has a break-even point. Enter the lump sum and a return you could earn elsewhere. Then change the years until the income equals the quote.
Say a lifetime offer on $200,000 matched the 15-year row: $1,581.59 a month. You'd need 15 years of payments to earn 5% a year. Buy at 70, and that's age 85.
The Social Security Administration's 2023 period life table gives a 70-year-old man 14.66 more years on average. A woman of 70 gets 16.76. Of those alive at 70, 49% of men and 60% of women reach 85. At 90, it's 27% and 37%.
FINRA says those who may benefit most are generally healthy people who expect to live longer-than-average lives.
Fixed payments lose buying power
FINRA notes that fixed annuity payments typically don't have cost-of-living adjustments, so their purchasing power may decline.
Consumer prices rose 3.4% in the 12 months to August 2026, before seasonal adjustment, the Bureau of Labor Statistics reported. The buying power calculator shows what a level $1,320 a month is worth:
What $1,320 a month buys at today's prices
A level payment in year 10 and year 20, at two inflation rates
Inflation protection is available, but FINRA says it generally costs significantly more.
What if the insurance company fails?
Every payment depends on the insurer. FINRA says an annuity is guaranteed only as long as the company issuing it remains in business. It adds that there may be state guarantees if an insurer fails.
But annuities aren't guaranteed by the FDIC, the SIPC or any other federal agency. FINRA's advice is to be comfortable with the issuer, not just the product. It notes that firms such as Standard & Poor's rate insurance companies.
How the income is taxed
In the US, FINRA notes, annuity gains are taxed at ordinary income rates. For a purchased commercial annuity, IRS Publication 939 (revised December 2025) explains the tax-free part.
For a single-life annuity, you multiply the yearly payment by a multiple based on your life expectancy. Divide your investment in the contract by that expected return to get the tax-free percentage of each payment.
If payments started after 1986, the tax-free total can't exceed your net cost. Once you've recovered it, payments are fully taxable. Die before recovering it, and the rest is an itemized deduction on your final return. The annuity payout calculator works through a fixed-period example.
Shop around before you commit
FINRA says buyers should research and shop around, since insurers may offer different features for the same lump sum. Compare quotes on equal terms: premium, start date and payout option.
Take your time, too. FINRA says the decision to annuitize, converting an annuity into regular payments, is generally irrevocable. Want to keep control of your money instead? The savings withdrawal calculator runs the same sum without an insurer.
Sources
- FINRA, Immediate Annuities: Money Now and for the Rest of Your Life ... for a Price (July 14, 2022)
- FINRA, Annuities (investor information)
- Social Security Administration, Actuarial Life Table: period life table 2023, as used in the 2026 Trustees Report
- U.S. Bureau of Labor Statistics, Consumer Price Index – August 2026 (September 11, 2026)
- IRS, Publication 939: General Rule for Pensions and Annuities (Rev. December 2025)