Annuity Calculator Australia 2026-27
Planning regular income from a lump sum investment.
Calculate the income stream from a lump sum annuity — monthly and annual payments, total interest earned, and full balance schedule. Compare term annuities from Australian providers including Challenger and AIA.
This calculator models a term annuity using the standard PMT formula. Actual annuity products vary — compare rates directly with providers.
Select the question that matches where you are right now.
Your result shows the regular income generated by investing a lump sum in a term annuity. The payment includes both a return of your principal and interest earned — at the end of the term, the full balance will have been paid back to you as income.
Unlike interest-only products, each annuity payment contains both a return of capital and interest. Early payments are mostly interest; later payments are mostly principal return.
At any positive rate, you receive more in total payments than you invested. The difference is the total interest earned — this is your return for lending your capital to the annuity provider.
The key feature of an annuity is certainty — payments are guaranteed regardless of market conditions. This makes it fundamentally different from an account-based pension or investment portfolio.
Three inputs drive the annuity payment: lump sum, interest rate, and term. The interaction between rate and term is non-linear — small rate changes have large effects on total income.
A 1% difference in rate has a significant effect on income. On $300,000 over 20 years: 3% gives $1,663/mo; 4% gives $1,818/mo — $155 more per month, $37,200 extra over 20 years from a 1% rate improvement.
A shorter term means faster capital return and higher monthly payments — but the income stream ends sooner. A 15-year annuity pays more per month than a 20-year annuity from the same lump sum but stops 5 years earlier.
A fixed annuity paying $2,000/mo today will have purchasing power of roughly $1,400/mo in 15 years at 2.5% inflation. This is a significant risk for long-term annuities. Use Detailed mode to see the real value of your income, or consider an indexed annuity product that increases with CPI.
Annuities compete with term deposits, account-based pensions, and investment portfolios. Each suits different priorities.
A term deposit at 5% on $300k earns $15,000/yr in interest but leaves capital intact. An annuity at 3% over 20 years pays $19,966/yr — more income, but capital is consumed. Choose TD if preserving capital is important; annuity if maximising income is the goal.
An ABP can pay more in good markets but less in bad. An annuity is fixed. The "floor and upside" strategy combines both: annuity covers essential expenses, ABP provides growth potential and flexibility.
This calculator models a term annuity. A lifetime annuity typically pays less per year but continues until death — valuable if you live well beyond average life expectancy. At age 70, average life expectancy is ~86 (male) to ~89 (female).
Once you have a sense of the income your lump sum can generate, these are the next steps.
Get quotes from Challenger, AIA, and Resolution Life directly. Rates change weekly. Also compare via an independent financial adviser who can access the full market. ASIC's MoneySmart has a product comparison tool.
Annuity income and purchase price are assessed under the Age Pension means test, but with a "deductible amount" that reduces the income test impact. This makes annuities more Age Pension-friendly than cash in an ABP for some people.
Annuity decisions interact with super, tax, Age Pension, and aged care planning. A fee-for-service retirement income specialist can model the full picture. ASIC's Financial Adviser Register at moneysmart.gov.au lists licensed advisers.
The annuity formula — how monthly income is derived from a lump sum
The annuity payment formula
An annuity converts a lump sum into equal periodic payments that return both principal and interest over the term. The formula is: PMT = PV × r(1+r)ⁿ / ((1+r)ⁿ − 1) where PV is the lump sum, r is the periodic interest rate, and n is the number of payments.
| Lump sum | Rate | Term | Monthly payment | Annual income |
|---|---|---|---|---|
| $200,000 | 3% | 20 yrs | $1,109 | $13,311 |
| $300,000 | 3% | 20 yrs | $1,663 | $19,966 |
| $400,000 | 4% | 20 yrs | $2,424 | $29,083 |
| $500,000 | 4% | 25 yrs | $2,901 | $34,812 |
| $750,000 | 4.5% | 25 yrs | $4,282 | $51,380 |
Key insight: you get back more than you put in
At any positive interest rate, you receive more in total payments than you invested — the difference is interest earned. At 3% over 20 years on $300,000, you receive $478,000 total — $178,000 more than your initial investment. This is the return on your capital.
Term annuities, lifetime annuities, and account-based pensions compared
Term (fixed) annuities
Pay a fixed income for a set number of years. At the end of the term, payments stop. If you die before the term ends, payments continue to your estate or nominated beneficiary (depending on the product). Providers include Challenger and AIA. Rates typically range from 3% to 5% depending on term length and prevailing interest rates.
Lifetime annuities
Pay income until you die, regardless of how long you live — eliminating longevity risk. The trade-off is that if you die early, your estate receives nothing (unless a guaranteed period is chosen). Challenger is the dominant provider in Australia. A 70-year-old man can typically receive $4,500–$5,500/yr per $100,000 invested.
Indexed vs flat annuities
Indexed annuities start at a lower income but increase with CPI each year. Flat annuities pay more initially but lose real value over time due to inflation. For long retirement periods (20+ years), indexation is important — $2,000/mo in 2025 will have significantly less purchasing power by 2045.
Account-based pension (for comparison)
An account-based pension (ABP) is not technically an annuity — it invests your super in a portfolio and you draw down a minimum amount each year. The balance can grow or fall depending on markets. ABPs offer more flexibility but no guaranteed income. Most retirees use a combination of ABP for growth and annuity for income certainty.
How annuity income is taxed — age 60+, under 60, and Centrelink assessment
Age 60 and over — generally tax-free
If your annuity is purchased with money from a taxed superannuation fund (the vast majority of Australian super), all income received after age 60 is completely tax-free. This is one of the most significant tax advantages of superannuation-funded retirement income.
Under age 60
Annuity income for those under 60 is generally assessable income, taxed at marginal rates. There may be a 15% offset for the taxed element of super-sourced annuities. For annuities purchased with non-super money, the income is taxed in full.
Centrelink assessment
Annuities are assessed under both the assets test and income test. For complying lifetime annuities, a "deductible amount" reduces the income test assessment — typically 60–65% of the income is assessed. The purchase price minus deductible amount is assessed as an asset, which reduces over time. This can make annuities more Age Pension-friendly than a similar amount held in an account-based pension.
How to use annuities in a retirement income strategy
The "floor and upside" approach
The most widely recommended approach is to use an annuity (or annuities combined with the Age Pension) to create a guaranteed income floor covering essential expenses — housing, food, health — and keep the remainder in an account-based pension or investments for discretionary spending and growth. This eliminates the anxiety of market downturns eroding essential income.
Sizing the annuity
A common rule: calculate your essential annual expenses (say $30,000/yr), subtract your Age Pension entitlement (say $14,000/yr), and buy an annuity covering the remainder ($16,000/yr). This might require $350,000–$450,000 in an annuity, leaving the rest in growth assets.
Interest rate timing
Annuity rates are directly linked to bond yields — when rates are high, annuity income is higher. After the 2022–2024 rate rises, annuity rates improved significantly. Locking in an annuity during a high-rate environment can be advantageous, though rates can always change.
Get financial advice
The interaction between annuities, Age Pension, super, and tax is complex. A fee-for-service retirement income specialist can model the optimal combination for your circumstances. ASIC's MoneySmart website also has a free Retirement Planner tool.
❓ Frequently asked Frequently asked questions
What is an annuity in Australia?
An annuity is a financial product where you pay a lump sum to a provider and receive regular income payments in return. Term annuities pay for a fixed period; lifetime annuities pay until you die. Australian providers include Challenger, AIA, and Resolution Life. This calculator models a term annuity — a fixed payment stream returning both principal and interest over the chosen term.
Is annuity income tax-free?
If purchased with money from a taxed superannuation fund and you are aged 60 or over, annuity income is generally tax-free. This is because super contributions and earnings were taxed at 15% inside the fund. Under 60, the income is taxable, though a 15% tax offset usually applies to the taxed component.
What happens to an annuity when you die?
For term annuities: remaining payments continue to your estate or nominated beneficiary. For lifetime annuities without a guaranteed period: payments stop and nothing is returned. Many lifetime annuity products offer a guaranteed minimum period (e.g. 10 years) — if you die within that period, payments continue to your estate until the period ends.
Are annuities a good investment in Australia?
Annuities are not primarily an investment — they are an income security product. They excel at eliminating longevity risk (outliving your money) and provide certainty regardless of markets. The trade-off is illiquidity and relatively low returns compared to equities. They work best as a floor income strategy alongside a growth-oriented account-based pension.
Where these figures come from
Superannuation figures on this page are drawn from the Australian Taxation Office (ATO — super rules and thresholds) and the Australian Prudential Regulation Authority (APRA — fund oversight and performance data).
- Super Guarantee (SG) rate — ATO — Super guarantee percentage.
- Concessional & non-concessional caps — ATO — Key superannuation rates and thresholds.
- Preservation age & condition of release — ATO — When you can access your super.
- Super fund performance & heatmap — APRA — Superannuation.
- Super consumer guidance — ASIC MoneySmart — Super.
Last checked: July 2026. Rates and thresholds are reviewed against the source of record each November, when annual adjustments for the following tax year are published.