Annuity Calculator

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.

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End Balance$27,943.29
Total Principal$20,000.00
Total Interest$7,943.29
Balance Accumulation Graph

RelatedAnnuity Payout Calculator | Retirement Calculator


An annuity is a fixed sum of money paid by an insurance company to a person in a stream of cash flows over a period of time, in many cases annually for the rest of their life (retirement-saving purposes). There are many different types of annuities including tax-advantaged annuities, fixed or variable rate annuities, annuities that pay out a death benefit to families or last a lifetime, and more. Different annuities serve different purposes, and have pros and cons depending on an individual's situation.

Immediate or Deferred

It is important to make the distinction between immediate or deferred annuities. An immediate annuity is an upfront premium that begins releasing payments from the principal as early as the next month. At first, it might seem counterintuitive to fork over a large sum of money just to have it returned in fixed and steady amounts over time. While this money in an immediate annuity does earn interest, it primarily serves as a way to guarantee a fixed stream of income for retirement. Immediate annuities have set interest rates that are determined from the start, and set to last for the life of the annuity; due to this, financial distributions are predictable. Immediate annuities are most popular among people who are already retired, are retiring in the near future, want to receive a steady payout for life, or who like the idea of predictability.

A deferred annuity is one that is built over time with tax shields, similar to any typical investment with growth potential such as 401(k)s or IRAs. It is created by making deposits over many years until a specific date at which the lump sum is taken over by the annuity issuer and an income stream is provided. Deferred annuities can be either fixed or variable. Fixed annuities provide fixed return rates, similar to immediate annuities. On the other hand, deferred variable annuities have varied rates dependent on indices such as inflation rates or broad stock indices. The advantage of a deferred annuity, as compared to an immediate annuity, is that while building capital, taxes are deferred, as its name implies. However, after annuitization (when it is converted from a deferred annuity to an income stream), earnings are taxable. Deferred annuities are common among people who want to save for retirement relatively early, are okay with not receiving funds until age 59 ½ or older, want to earn tax-deferred interest, or want to save more than the limits imposed by their IRA or 401(k).


Like most financial products, annuities have certain fees associated with them. Different ones have different fees, but variable annuities generally have more.

Surrender Charges—This only applies when canceling an annuity, or surrendering it. In most cases, it only applies to the beginning 6 to 8 years of the life of an annuity, but some plans may be subject to a surrender charge for as long as 15 to 20 years. For some policies, the surrender charge may decline over the years. They are typically calculated as a percentage based on the amount withdrawn from the annuity. It is possible to find annuities that don't have surrender charges, but these likely require higher annual expenses.

Commissions—Annuities are generally sold by insurance brokers who charge a fee of anywhere from 1% for the most basic annuity to as much as 10% for complex annuities indexed to stock market. The simpler the annuity structure or the shorter the surrender charge period, the lower the commission.

Investment Management Fees—Like management fees paid to portfolio managers of mutual funds and ETFs, variable annuity investments also require fees to pay to portfolio managers.

Rider Charges—These are entirely optional addons that add specific features to annuities. The most popular rider charge is an Annual Increase Rider that increases payment each year by a predetermined percent, usually 1% to 5% in order to keep pace with inflation.

Rolling 401(k)s or IRAs Into Annuities

It is feasible to rollover qualified retirement plans like 401(k)s and IRAs into annuities, tax-free. After all, these retirement savings accounts do have the primary purpose of providing income in retirement. Annuities can help dictate how retirees live in accordance with their funds, or at least make the future income streams more predictable through fixed annuities. As a result, annuities can act as a sort of insurance for guaranteed income in retirement.

Pros and Cons

Certain annuity features such as surrender charges implemented by insurance companies or early withdrawal penalties implemented by the IRS are put in place to discourage liquidity. Investors who are prone to moving money around constantly may want to avoid annuities for this reason. Furthermore, annuities tend to be complicated in terms of their taxation and withdrawal rules. Each annuity product can have many differing rules laid out in their respective contracts, and it is up to each investor to make sure they are operating accordingly and within legal bounds.

A study of fixed indexed annuities found that their average, annualized return rate was 3.27%, which is historically less than the frequently cited 7% return rate of the stock market. This figure generally falls within the ballpark of bond interest rates because insurance companies typically invest up to 70% of their capital in fixed income forms such as corporate bonds. Annuities may not have the higher return rates associated with equities, but there is less volatility and risk involved. They sit in a median category below equities but above treasury bills and savings accounts, which generally have meager return rates just above inflation.

The main benefits of annuities come from being able to guarantee predictable income without risk, the tax benefits associated with building capital in deferred annuities, and as a regulated stream of income; for instance, a heavy spender who suddenly inherits a vast sum of wealth who needs to ration it for the future, or a retiree who needs to ensure that they won't outlive their assets. Also, due to the guaranteed income aspect of annuities, they tend to be popular among highly conservative investors.

With that said, most people use annuities not as standalones, but as supplemental investments in combination with other investments such as IRAs, 401(k)s, or other pension plans. Many people find that as they get older, investment options with tax shields approach or reach their contribution limits. As a result, options to tuck away large sums of cash safely and conservatively are sparse, and annuities can be one of these options. Other people find the need to diversify to hedge properly within their retirement portfolios, which annuities can help with.

All in all, annuities make sense for some, but not all. It is important for each individual to evaluate in detail their specific situations.