How to use the annuity calculator
Enter a starting principal, the amount you add each year or each month, whether each addition is made at the beginning or the end of its period, the annual growth rate and the number of years. The calculator shows the end balance, how much of it is your money and how much is return, and a year-by-year or month-by-month schedule you can export as CSV or PDF.
This is the accumulation phase: the money you build up before it pays you. To turn a balance into regular income, use the annuity payout calculator.
What is an annuity?
In finance, an annuity is a series of equal payments at regular intervals, such as a yearly deposit into a savings account. The word also names a contract sold by an insurance company: you pay in a lump sum or a series of payments, the money grows tax-deferred, and later the insurer pays it back as income.
- Fixed annuity: the insurer guarantees a rate for a set number of years.
- Variable annuity: the money is invested in funds, so the return goes up and down with the markets.
- Fixed indexed annuity: the return follows a stock index such as the S&P 500, with a cap on the gains and a floor that protects against losses.
- Deferred or immediate: a deferred annuity grows for years before it pays; an immediate annuity starts paying within a year of purchase.
Annuity due or ordinary annuity
With an annuity due each addition is made at the beginning of the period, so it earns a full period of growth. With an ordinary annuity the additions come at the end of each period, so the last one earns nothing. An annuity due always grows more: in the example below, $7,908.48 more after 10 years.
Future value of an annuity formula
For an ordinary annuity, FV = P × (1 + r)n + A × ((1 + r)n − 1) ÷ r, where P is the starting principal, A the addition per period, r the rate per period and n the number of periods. For an annuity due, the addition part is multiplied by (1 + r). Monthly additions use the monthly rate that compounds to the annual rate: 6% a year is 0.4868% a month.
Annuity calculator example
Start with $50,000.00, add $10,000.00 at the beginning of every year and grow it at 6%. After 10 years the balance is $229,258.81: $50,000.00 of principal, $100,000.00 of additions and $79,258.81 of return. With the additions at the end of each year it is $221,350.33. Adding $833.33 at the beginning of each month instead gives $225,595.96, less than the yearly addition, because most of each year's money goes in later. These are the default inputs of the calculator.
| After | Annuity due | Ordinary annuity |
|---|---|---|
| 5 years | $126,664.46 | $123,282.21 |
| 10 years | $229,258.81 | $221,350.33 |
| 20 years | $550,284.04 | $528,212.69 |
| 30 years | $1,125,191.33 | $1,077,756.42 |
Annuity future value in Excel
Excel's FV function gives the same result for yearly additions. The last argument is 1 for an annuity due and 0 for an ordinary annuity:
=FV(6%, 10, -10000, -50000, 1)returns $229,258.81.=FV(6%, 10, -10000, -50000, 0)returns $221,350.33.
Taxes, fees and surrender charges
In a deferred annuity the growth is not taxed until you take it out; then the earnings are taxed as ordinary income, and taking them before 59½ usually adds a 10% penalty. Insurance annuities also have costs that a savings account does not: yearly fees on variable annuities, and surrender charges if you withdraw more than a set share in the first years of the contract. Subtract the fees from the growth rate for a realistic estimate. Before buying one, compare it with tax-advantaged accounts in the IRA calculator.
Similar calculators
- The compound interest calculator grows deposits with daily to annual compounding.
- The future value calculator works for any payment frequency, and the present value calculator does the opposite: what a future amount is worth today.
- The retirement calculator shows how much you need to save for retirement in the first place.