Annuity Payout Calculator

What a payout phase looks like

Most retirement writing includes the years when savings go in. This page includes the years when they come out. You begin with a nest egg, take a set sum on a schedule, and whatever stays invested keeps earning. The pot shrinks over time, slowly at first, then faster near the end.

The tool answers one of two questions. Name the withdrawal and it shows how many checks the pot supports, plus the size of the last one. Name the number of years and it shows the check that stretch allows. Both answers rest on four pieces: starting balance, yearly return, withdrawal, and time. Fix any three and the fourth follows.

Annuity here means a stream of equal payments at steady intervals, the textbook meaning. A life annuity sold by an insurer is one form of that idea with a promise attached. The figures below are not a quote for any insurance product.

One warning first. A constant return is an assumption, not a description of markets. Real portfolios climb and slide, and the order of those shifts counts. Treat the output as a planning band, not a promise.

How long a balance lasts at a set withdrawal

The duration equation is n = -ln(1 - PV x r / PMT) / ln(1 + r). PV is the starting balance, r the return per period, PMT the withdrawal, and n the number of periods. The logarithm is there because the pot shrinks by a percentage each period, not by a fixed dollar sum.

Put in 400,000, a 5 percent yearly return, and 2,000 taken at the end of each month. The monthly return is 0.0041667. First month earnings are 1,666.67, so earnings cover 0.8333 of the withdrawal. One minus that is 0.1667, and its logarithm is -1.7918. Divide by ln(1.0041667), which is 0.004158, and n is 430.9 months.

That means 430 complete withdrawals of 2,000 and one last 1,835.38 in month 431. In calendar terms, 35 years and 11 months. Total collected is 861,835.38: 400,000 of your own funds and 461,835.38 of earnings.

The proportion of earnings to withdrawal shows how hard the pot is working. At 0.8333, earnings cover 83 percent of the first check, so almost nothing comes out of principal at the start. By the last year earnings cover a modest slice, and most of each check is your own funds returning.

Shift the balance to 500,000 and keep 2,500 a month at 4.5 percent, and the money lasts 371 withdrawals, or 30 years and 11 months. A bigger pot and a more modest percentage withdrawal both push the finish line out.

Taking the money at the start or the end

Timing counts because money that exits earlier stops earning sooner. An ordinary annuity pays at the end of each stretch. An annuity due pays at the beginning. Paying at the beginning is worse for the pot, all else equal, because every withdrawal costs one additional period of growth.

The same 400,000 at 5 percent with 2,000 taken at the start lasts 426 withdrawals, not 431. The last check is 1,958.02, and total collected falls to 851,958.02 with 451,958.02 of earnings. The difference is 9,877.36 over the entire payout.

For a fixed period the adjustment is one line: divide the end-of-period amount by (1 + r). Over 20 years, 2,639.82 at month end turns 2,628.87 at the start. The same balance supports a slightly more modest check when it is paid earlier.

Which one matches your life? Rent, pensions, and Social Security usually arrive at the start of a stretch. Most withdrawal studies assume the end. Pick whichever matches the actual cash flow. The gap is modest per month but adds up across decades.

Setting a fixed number of years

Sometimes the stretch is the fixed part. A bridge account that includes the years before Social Security begins, or a payout meant to reach a set age, has a known timeframe. Then the question is how much each check can be.

The equation is PMT = PV x r / (1 - (1 + r)^-n). With 400,000, 5 percent, and 20 years, n is 240 and the payment is 2,639.82 at the end of each month.

A 30 year timeframe sends 2,147.29 a month, 492.53 less than the 20 year version, but total collected rises by 139,465.63. Stretching the period lowers the check and raises the total, the same trade a longer loan term makes in reverse.

The start column is lower by one month of return: 2,628.87 earns 0.4167 percent in a month, which is 10.95, and that is exactly the gap to 2,639.82. A small difference on a statement, but it repeats 240 times.

How much of each check is earnings

Every withdrawal mixes two things: earnings on the funds still invested, and return of your own principal. Early on the mix is mostly earnings. Afterward it flips, and by the end almost the entire check is your own funds coming back.

In year one, 24,000 exits the pot, 19,907.05 of it is earnings, and the balance drops by 4,092.95. In year ten the earnings are 17,586.97. By year thirty they are 6,603.76, with 122,580.45 still invested. The last year sends 21,835.38 with 532.85 of earnings.

Across the complete payout, earnings come to 461,835.38, more than the starting balance. The pot can send out 861,835.38 from 400,000 because the money still invested keeps earning while it waits its turn.

The return assumption drives this more than anything else. At 6 percent, 400,000 earns exactly 2,000 in the first month, so a 2,000 withdrawal uses only earnings and the balance never falls. At 4 percent the same 2,000 lasts about 27.5 years. Two points of return separate that from a pot that never runs dry.

Returns do not arrive in a neat line. Suppose the pot gains 12 percent in one year and loses 8 percent the next, while the withdrawal remains at 24,000. The good year adds 48,000 before the check, the bad year removes about 34,000, and the pot ends lower than a steady 5 percent path would leave it. Reverse the order and the pot ends slightly lower again, because the withdrawal after the loss removes money that would have recovered with the next gain. That is sequence risk, and that is why a strategy built on an average return can fail even when the average holds. A guardrail approach trims spending after a bad year and restores it after a good one; a bucket approach keeps two or three years of checks in cash so the rest has time to recover.

Inflation and the shrinking check

A level withdrawal loses value every year that prices rise. At 3 percent inflation, 2,000 buys what 1,725.22 buys today after five years, 1,488.19 after ten, 1,107.35 after twenty, and 823.97 after thirty.

Over 30 years the check loses 58.8 percent of its purchasing power. A strategy that feels comfortable at 65 can feel tight at 85 without a single bad investment decision.

Three common responses: start with a more modest withdrawal and raise it with inflation, hold a reserve for the later years, or buy a payout product with a cost-of-living adjustment. Each has a cost. Raising the withdrawal each year shortens the payout, and this calculator shows that when you enter a bigger sum.

The 4 percent rule assumes the check grows with inflation. A flat 2,000 strategy does not, and that difference is easy to miss when the first year feels fine.

Where the 4 percent rule comes from

The 4 percent rule traces to William Bengen's article "Determining Withdrawal Rates Using Historical Data," published in the Journal of Financial Planning in October 1994. Bengen tested 30 year retirement stretches starting from 1926 with US stock and bond returns and inflation. He found that an initial withdrawal near 4 percent, adjusted for inflation each year, survived the worst starting points in that record. His original figure was 4.15 percent.

On 1,000,000, 4 percent is 40,000 in the first year, or 3,333.33 a month. The rule then lifts that dollar sum with inflation, so the percentage of the leftover portfolio drifts over time.

It is a guide, not a promise. The outcome depends on the returns and inflation of the decades you live through, on charges, and on the order of returns. A poor first decade does more damage than a poor last one. Later research, including Bengen's own updates, has suggested different rates under different assumptions. A Journal of Financial Planning review of withdrawal strategies treats the rule as one decision rule among several, not a law of retirement.

Notice what the rule protects against: a bad sequence, not a low average. At a steady 6 percent, a 4 percent withdrawal never depletes the balance in this calculator. History is harsher than a constant return, which is why the rule is more cautious than the arithmetic alone indicates.

Life annuities and the questions to ask

A life annuity is an insurance contract. You pay a lump sum and the insurer promises a payout for as long as you live. The insurer pools longevity risk across many people, so it can offer a lifetime promise that a single portfolio cannot guarantee. In exchange, the contract may pay heirs zero if you die early, unless you add a survivor or guaranteed term feature.

Quotes depend on your age, health, the interest rate environment, and the options you choose. A 65 year old and a 75 year old receive different rates for the same premium. Products also carry ongoing charges, surrender penalties, and limits under state guaranty associations.

This calculator prices no insurance and recommends no contract. It shows what a fixed return would support. For the contract itself, read the SEC's Investor.gov guide to annuities, the SEC investor bulletin on variable annuities, and ask for a printed illustration. For the lifetime payout you already have, the Social Security Administration's retirement estimator shows your projected benefit.

Questions worth asking an insurer: What payout rate applies to my age? Is the payment fixed, indexed, or tied to investments? What do heirs receive if I die in year three? What are the total yearly charges? Is there a cost-of-living adjustment, and what does it cost? What happens if the insurer fails, and what does my state guaranty association cover?