The Annuity Calculator is intended for use involving the accumulation phase of an annuity and shows growth based on regular deposits. Please use our Annuity Payout Calculator to determine the income payment phase of an annuity.
An annuity calculator is a tool that models the accumulation phase of an annuity - how a starting principal and regular contributions grow over time at a given rate of return. Enter a starting balance, annual or monthly addition amount, whether contributions happen at the beginning or end of each period (annuity due vs. ordinary annuity), an annual growth rate, and the number of years, and the calculator shows your projected ending balance, total contributions, total interest earned, a year-by-year accumulation schedule, and visual charts of your growth.
This calculator focuses on accumulation - building the nest egg. For the payout phase - calculating how long a lump sum will last or what monthly income a given balance can generate - use our Annuity Payout Calculator.
Understanding annuity math before you purchase a contract is essential. Annuities are complex financial instruments with long time horizons, significant fees, and irreversible decisions at key stages. Running projections independently - without relying solely on an insurance agent's illustrations - gives you a clearer picture of true expected growth and the cost of fees on your final balance.
An annuity is a contract between an individual and an insurance company. In exchange for a lump sum payment or a series of payments (called premiums), the insurance company agrees to provide a stream of income payments - either immediately or at a future date - for a defined period or for the rest of the annuitant's life.
Annuities are primarily retirement planning tools. They address one of the central challenges of retirement: longevity risk - the risk of outliving your assets. An annuity with a lifetime payout guarantee eliminates this risk entirely, providing income no matter how long the annuitant lives. For this reason, annuities are often described as the mirror image of life insurance: life insurance protects against dying too soon; annuities protect against living too long.
In the U.S., annuities are regulated at the state level and sold primarily by insurance companies, though they are distributed through banks, broker-dealers, and financial advisors. They complement other retirement income sources - Social Security, pension plans, 401(k)s, IRAs - and are particularly attractive to individuals who have maxed out tax-advantaged account contributions and seek additional tax-deferred growth.
During the accumulation phase, money is deposited into the annuity - either as a single premium (lump sum) or through periodic contributions over time. The funds grow on a tax-deferred basis, meaning no income taxes are owed on earnings until the money is withdrawn. This deferral allows the full pre-tax balance to compound, potentially producing significantly more growth than a taxable account over long periods.
The rate of growth during the accumulation phase depends on the type of annuity: fixed rates are locked in at contract signing, variable rates fluctuate with investment performance, and indexed rates track a market index with caps and floors. Our annuity calculator models the accumulation phase using a constant annual growth rate - appropriate for illustrating fixed annuity growth or for setting general expectations with a long-term average return assumption.
When the accumulated balance is converted into a stream of income payments, the annuity enters the annuitization phase. This conversion - called annuitizing the contract - is typically irreversible: once you begin receiving payments, you generally cannot access the remaining lump sum or change the payment structure.
Payout options include:
These two terms describe when contributions or payments occur within each period:
Our calculator offers both options via the "Add at beginning/end" radio buttons. For accumulation modeling, the difference between the two is relatively small but becomes more significant over long time horizons and at higher interest rates.
A fixed annuity guarantees a specific interest rate for a set period, after which the rate is typically reset. The insurance company bears all investment risk - your principal is protected regardless of market conditions (up to the limits of the insurer's financial strength and state guaranty fund protections). Fixed annuities are predictable and conservative, making them popular with risk-averse retirees who prioritize income certainty over growth potential.
Multi-Year Guarantee Annuities (MYGAs) are a fixed annuity sub-type that lock in a rate for a specific term - often 3, 5, or 7 years - similar to a bank CD but with tax deferral. At the end of the term, you can renew, exchange into another annuity (via a tax-free 1035 exchange), or withdraw the funds. MYGAs often offer higher rates than comparable CDs, and the tax deferral amplifies growth for investors in higher tax brackets.
Variable annuities allow you to allocate premiums among a menu of investment subaccounts - similar to mutual funds - covering stocks, bonds, money market instruments, and various asset classes. Returns fluctuate directly with the performance of your chosen subaccounts, and there is no guarantee of principal return. In strong markets, variable annuities can significantly outperform fixed products; in down markets, the account value can decline.
Variable annuities carry the highest fee structures of any annuity type. The combination of mortality and expense charges (0.40%–1.75% annually), administrative fees, subaccount investment expenses (similar to fund expense ratios), and optional rider costs can easily total 2%–4% per year - a significant drag on returns that compounds dramatically over decades. A variable annuity earning 7% gross with 3% in total fees produces a net return of only 4%.
Fixed indexed annuities are legally classified as fixed annuities but link returns to a market index such as the S&P 500, the Nasdaq-100, or a bond index. They provide a guaranteed minimum (typically 0% - meaning you cannot lose principal) while offering upside participation in index gains, subject to two key limits:
FIAs offer a middle ground - downside protection with partial upside potential. Studies have found average annualized FIA returns around 3.27%, lower than historical equity market averages but with significantly lower volatility. They are best suited for conservative investors who want some market exposure without risking principal.
Immediate annuities (also called Single Premium Immediate Annuities, or SPIAs) convert a lump sum into income payments that begin within one month to one year of purchase. They are purchased at or near retirement with funds already accumulated - from savings, an IRA rollover, or a pension lump sum. The appeal is simplicity and certainty: hand over a sum of money, receive predictable monthly income for life.
Deferred annuities accumulate value over years or decades before payments begin. The annuity grows tax-deferred during the accumulation phase, then converts to income when the owner chooses to annuitize or begins taking withdrawals. Deferred annuities are the primary tool for pre-retirement annuity savings - the type modeled by our accumulation calculator above.
Annuities are classified based on how they are funded:
The tax-deferred growth of annuities is their most cited advantage, but the tax treatment at withdrawal is important to understand:
Annuity fees can substantially erode returns over time. Before purchasing any annuity, request a complete disclosure of all charges:
To assess the real cost of an annuity, compare its projected net return (after all fees) to low-cost alternatives such as index funds in a taxable brokerage account or a bond ladder. For many investors, the tax deferral advantage does not outweigh high fee structures - particularly in variable annuities with total annual costs above 2%.
All annuity contracts sold in the U.S. must include a free-look period - typically 10 to 30 days from the date the contract is delivered - during which you may cancel the contract for any reason and receive a full refund of your premium, with no surrender charges. State law mandates minimum free-look periods; many insurers offer longer windows. If you have any doubts about an annuity you've purchased, act during the free-look period before it closes.
One of the most common ways to fund a deferred annuity is through a rollover from an existing retirement account. The key rules:
| Feature | Annuity | 401(k) / IRA | Taxable Brokerage |
|---|---|---|---|
| Tax-deferred growth | Yes | Yes | No |
| Contribution limits | None | Yes (IRS limits) | None |
| Lifetime income guarantee | Yes (optional) | No | No |
| Principal protection | Fixed/indexed only | No | No |
| Liquidity | Low (surrender period) | Moderate (penalties pre-59½) | High |
| Annual fees | High (0.5%–4%+) | Low (index funds: 0.03%+) | Low (index funds: 0.03%+) |
| RMDs required | Qualified only | Yes (age 73) | No |
| Death benefit | Yes (most contracts) | Beneficiary inherits | Beneficiary inherits |
Tax deferral means the earnings inside your annuity compound without being reduced by annual taxes. In a taxable account, you pay tax on dividends and capital gains each year, leaving a smaller base to compound the following year. With tax deferral, the full pre-tax balance compounds continuously. The benefit is largest over long time horizons and for investors in higher tax brackets. However, because withdrawals are eventually taxed as ordinary income (not at the lower capital gains rate), the advantage is partially offset - particularly for assets like stocks that would otherwise qualify for long-term capital gains rates in a taxable account.
It depends on the type. Fixed annuities guarantee your principal - you cannot lose the invested amount unless the insurance company becomes insolvent (state guaranty associations typically protect up to $250,000 per insurer). Fixed indexed annuities also protect principal from market losses, though surrender charges can temporarily reduce your accessible value. Variable annuities have no principal guarantee - your account value fluctuates with investment performance and can decline in down markets. Fees in variable annuities can also erode value even in flat markets.
A 1035 exchange (named for Section 1035 of the Internal Revenue Code) allows you to transfer the value of one annuity contract to another - or to a life insurance policy - without triggering a taxable event. This is useful when you want to move to a product with lower fees, better investment options, or stronger guarantees without paying taxes on accumulated gains. The exchange must be made directly between insurance companies; if you take personal receipt of the funds, the IRS considers it a taxable surrender. Working with a financial professional experienced in 1035 exchanges helps ensure the transaction is structured correctly.
Both provide regular income payments, but they differ in origin and risk. A pension (defined benefit plan) is provided by an employer, who promises a specific monthly payment based on years of service and salary - the employer bears the investment and longevity risk. An annuity is purchased by the individual from an insurance company, using their own savings - the insurer bears the longevity risk (but not investment risk in the case of variable annuities). As traditional pensions have largely disappeared from the private sector, annuities have become one of the primary ways individuals can create a private pension-like guaranteed income for retirement.
Annuities are appropriate for some investors and not others. They tend to make the most sense when: you have already maximized other tax-advantaged accounts (401(k), IRA, HSA); you want a guaranteed lifetime income you cannot outlive; you have a low risk tolerance and value principal protection; or you are in a high tax bracket and would benefit significantly from additional tax deferral. Annuities are generally less appropriate when: you need liquidity in the near term; your primary goal is maximizing investment returns (low-cost index funds in a taxable account outperform high-fee annuities in most historical scenarios); or you are young and have decades before retirement (the compounding drag of fees is most damaging over very long periods). Always consult a fee-only financial advisor - one who earns no commission on annuity sales - for an objective assessment.
The outcome depends on the contract terms and the payout option chosen. During the accumulation phase, most annuities pay a death benefit to the named beneficiary - typically the greater of the account value or the total premiums paid. After annuitization, it depends on the payout option: a life-only annuity ends at death with no residual payment; a period-certain option continues payments to beneficiaries for the guaranteed period; a joint and survivor annuity continues payments to the surviving annuitant. For non-qualified annuities, beneficiaries owe income tax on the earnings portion of any death benefit received.