Annuity Calculator United States 2026
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 US providers including Fidelity, Vanguard, and MetLife.
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 systematic withdrawal plan 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/month; 4% gives $1,818/month — $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/month today will have purchasing power of roughly $1,400/month 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, systematic withdrawal plans, and investment portfolios. Each suits different priorities.
A term deposit at 5% on $300k earns $15,000/year in interest but leaves capital intact. An annuity at 3% over 20 years pays $19,966/year — more income, but capital is consumed. Choose TD if preserving capital is important; annuity if maximising income is the goal.
A withdrawal plan can pay more in good markets but less in bad. An annuity is fixed. The "floor and upside" strategy combines both: the annuity covers essential expenses, the withdrawal plan 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 New York Life, MetLife, and Pacific Life directly. Rates change weekly. Also compare via an independent financial adviser who can access the full market. FINRA's BrokerCheck and The SEC's Investor.gov both offer broker and product-research tools.
Social Security is not means-tested — an annuity never lowers your benefit. But annuity income raises your "combined income," which decides how much of your Social Security is taxed: up to 85% once combined income tops $34,000 (single) or $44,000 (joint). A non-qualified annuity counts only its taxable earnings portion.
Annuity decisions interact with your 401(k)/IRA withdrawals, income tax, Social Security, and long-term-care (Medicaid) planning. A fee-only retirement income specialist or CFP can model the full picture. The SEC's Investment Adviser search at investor.gov lists registered 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 systematic withdrawal plans 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 Fidelity, Vanguard, and MetLife. 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). Fidelity is the dominant provider in the United States. A 70-year-old man can typically receive $4,500–$5,500/year 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/month in 2026 will have significantly less purchasing power by 2046.
Systematic withdrawal plan (for comparison)
A systematic withdrawal plan is not technically an annuity — it keeps your 401(k) or IRA invested in a portfolio and you draw down a set amount (or a percentage, such as the 4% rule) each year. The balance can grow or fall depending on markets. A withdrawal plan offers more flexibility but no guaranteed income. Many retirees combine a withdrawal plan for growth with an annuity for income certainty.
How annuity income is taxed — qualified vs non-qualified, the exclusion ratio, and Social Security
Qualified annuities (bought inside a 401(k) or IRA)
If you buy the annuity with pre-tax retirement money — inside a traditional 401(k) or IRA — every payment is taxed as ordinary income when you receive it, because none of that money has been taxed yet. Required Minimum Distributions (RMDs) begin at age 73 under the SECURE 2.0 Act. Withdrawing earnings before age 59½ generally adds a 10% IRS early-distribution penalty on top of income tax.
Non-qualified annuities (bought with after-tax money)
If you buy the annuity with money you have already paid tax on, only the earnings portion of each payment is taxable — the return of your original principal comes back tax-free. The IRS "exclusion ratio" sets what share of each payment is tax-free basis versus taxable earnings. Once you have recovered your full basis (roughly at life expectancy), all further payments are fully taxable. See IRS Publication 575, Pension and Annuity Income.
Effect on your Social Security
Social Security is not means-tested, so an annuity never reduces your monthly benefit. But annuity income raises your "combined income" (adjusted gross income + tax-exempt interest + half your benefits), which decides how much of your Social Security is taxable: none below $25,000 (single) / $32,000 (married filing jointly), up to 50% above that, and up to 85% above $34,000 (single) / $44,000 (joint). Those thresholds are set in statute and are not inflation-indexed (SSA).
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 an annuity combined with Social Security) to create a guaranteed income floor covering essential expenses — housing, food, health care — and keep the remainder in a growth-oriented portfolio or systematic withdrawal plan for discretionary spending. This eliminates the anxiety of market downturns eroding essential income.
Sizing the annuity
A common rule: calculate your essential annual expenses (say $45,000/year), subtract your expected Social Security benefit (the 2026 average retired-worker benefit is about $24,852/year, or $2,071/month), and buy an annuity covering the remaining gap (about $20,000/year). A lifetime annuity for that income might require $350,000–$450,000, 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.
Annuities and long-term-care (Medicaid) planning
Medicare does not pay for long-term custodial care (a nursing home or in-home aide), so most people pay out of pocket until they qualify for Medicaid — which in most states limits an individual to about $2,000 in countable assets in 2026 and reviews asset transfers over a 60-month "look-back." A Medicaid-compliant immediate annuity (irrevocable, non-assignable, actuarially sound, naming the state as remainder beneficiary) can convert countable assets into an income stream, often so a healthy "community spouse" keeps income while the spouse in care qualifies. The community spouse can also keep up to $162,660 in resources in 2026 (the Community Spouse Resource Allowance). This is specialist territory — work with an elder-law attorney.
Get financial advice
The interaction between annuities, Social Security, 401(k)/IRA withdrawals, income tax, and Medicaid planning is complex. A fee-only retirement income specialist or CFP can model the optimal combination for your circumstances. The CFPB (consumerfinance.gov) also publishes free retirement planning resources.
Frequently asked Frequently asked questions
What is an annuity in the United States?
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. US providers include New York Life, MetLife, and Pacific Life. This calculator models a term annuity — a fixed payment stream returning both principal and interest over the chosen term.
Is annuity income taxable?
It depends how you bought it. A qualified annuity (inside a traditional 401(k) or IRA) is fully taxable as ordinary income, because the money went in pre-tax. A non-qualified annuity (bought with after-tax savings) is only partly taxable — the IRS exclusion ratio treats the return of your principal as tax-free and taxes just the earnings portion. Either way, annuity earnings are ordinary income, not lower-rate capital gains.
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 the United States?
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 systematic withdrawal plan.
Where these figures come from
Retirement figures on this page come from The IRS (contribution limits and tax treatment), the SSA (Social Security benefits), and The US Department of Labor / Employee Benefits Security Administration.
- 401(k) & IRA contribution limits — IRS — Retirement Plan Contribution Limits.
- Required Minimum Distributions — IRS — RMDs.
- Social Security benefits & retirement age — SSA — Retirement Benefits.
- 2026 COLA and wage base — SSA — Cost-of-Living Adjustment.
- Retirement plan rules for employers — DOL/EBSA — Retirement Plans.
Last checked: April 2026. Rates and thresholds are reviewed against the source of record each November, when annual adjustments for the following tax year are published.