Annuity Payout Calculator

With this tool you can calculate either the regular payment you’ll receive for a set number of years, or how many years a chosen payment will sustain the annuity. Check out our Annuity Calculator to forecast the remaining balance after the accumulation stage.

Annuity Balances

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Qualified vs. Non-Qualified Annuities

Qualified

Within the United States, a tax‑qualified annuity is tied to retirement accounts that receive tax‑favored treatment, such as IRAs or 401(k)s. Other, less common qualified plans include traditional pension schemes, 403(b) plans, Keogh arrangements, Thrift Savings Plans and Simplified Employee Pensions. Money contributed to qualified annuities generally comes from pre‑tax earnings and is excluded from taxable income in the year of contribution, which can lower that year’s tax bill. The withdrawals, however, are taxed as ordinary income when taken in future years.

When these contracts serve as retirement savings, they inherit the tax advantages and potential penalties of their underlying plan. Nonetheless, the specific annuity contract rules take precedence and may supersede certain plan provisions. Consequently, features unique to annuities—like guaranteed death benefits that pay beneficiaries regardless of market downturns or account‑value declines—can still be part of the product.

Non-Qualified

Funding for these contracts comes from after‑tax money. In practice, only the earnings portion of a non‑qualified annuity is subject to ordinary‑income tax; the principal remains tax‑free. Unlike qualified annuities, non‑qualified ones are not bound by required minimum distribution rules after age 72, and there is no cap on how much after‑tax cash can be placed into them or on the number of contracts an individual can own.

Early Withdrawals

Taking a distribution before reaching age 59½ triggers a 10 % early‑withdrawal surcharge in addition to regular income tax. Earnings stay untaxed until the money is actually taken out. For non‑qualified annuities purchased after Aug 13 1982, withdrawals follow a “last‑in, first‑out” method, meaning earnings are dispensed before the original contribution.

That said, many contracts provide flexibility. Most annuity agreements permit a partial yearly withdrawal without a surrender charge, and some allow you to pull out only the gains—leaving the principal untouched—without penalty. Early withdrawals may also be exempt from the 10 % fee under certain circumstances, such as disability, a serious medical condition, or a terminal illness. A few policies even reward penalty‑free draws used to cover long‑term‑care costs.

Phases of an Annuity

There are several phases in the life of an annuity: the accumulation, annuitization, and payout phases.

Accumulation Phase

The accumulation stage marks the initial period when an annuity gathers cash value from contributed assets. It begins right after the first deposit and can be funded either by a single lump‑sum or a series of payments, typically via check or electronic transfer. A lump‑sum is often preferred by those nearing or already in retirement, enabling a swift move into the annuitization and payout phase—sometimes called an “immediate annuity” because income starts almost right away. Conversely, younger investors may favor periodic contributions to grow wealth over time. Even after the accumulation phase ends, the account can continue to earn returns (assuming favorable market conditions) throughout the payout phases, whether the product is fixed, indexed, or variable. Earnings grow tax‑deferred until the owner begins taking withdrawals.

1035 Exchange

A 1035 Exchange—named after the corresponding section of the Internal Revenue Code—permits policyholders to move money from a life‑insurance, endowment, or annuity contract into a new policy without the transaction being treated as a taxable sale.

This is beneficial to policyholders for several reasons:

• Economic conditions continually change over time and can potentially adversely affect each individual and their long-term contracts.
• General improvements in the health and life expectancy of the entire population can lower insurance costs.
• Policyholders who no longer need life‑insurance protection can shift the cash value into an annuity. By converting the policy, the death benefit is surrendered, premium payments cease, and a guaranteed income stream is established for a predetermined period.

In these scenarios, a 1035 Exchange allows policyholders to get out of sticky situations by replacing outdated contracts with new contracts that have improved benefits, higher death benefits, lower fees, and/or alternate investment options.

Only the following transfers are considered tax-free by the IRS:

• Exchanging one annuity contract with another annuity contract or an annuity with long-term care benefits
• Exchanging one life insurance contract with another life insurance contract, endowment contract, or annuity contract
• Exchanging one endowment policy for an identical endowment policy that does not delay the date upon which payments will begin, or an annuity contract

Swapping an annuity for a life‑insurance policy does not qualify as a 1035 Exchange and will be taxed as a sale. Moreover, a valid 1035 Exchange requires that the owner, the insured, and the annuitant be the same individuals named on the original contract.

Partial 1035 Exchange of Annuity

Whereas a 1035 exchange involves moving an entire annuity, an owner can also conduct a partial exchange, shifting only a segment of the contract to a new annuity without incurring tax. The cost basis is allocated proportionally rather than withdrawing earnings first. For example, swapping half of the original annuity’s value transfers half of its basis to the new policy.

Consider an investor with a $50,000 non-qualified deferred annuity that carries a $40,000 cost basis. If they take a $10,000 cash out, the whole amount is taxable. If instead they withdraw $25,000 and use it to fund a second annuity, each contract ends up with a $25,000 balance and a $20,000 basis. Under this split‑basis rule, a $10,000 distribution from either contract would generate only $5,000 of taxable income.

To be eligible, no withdrawals may be made from either contract during the 180‑day window following the partial exchange. Taking money out in that period could cause the IRS to treat the withdrawal as part of the original swap, making the full amounts from both contracts taxable. Although the tax code permits partial exchanges, many insurers do not offer the service.

Partial and full 1035 exchanges are governed by a complicated set of tax regulations; consulting a tax adviser or financial professional is advisable.

Annuitization Phase

The annuitization step is essentially a one‑time event that marks the transition from the accumulation stage to the payout stage. At this point the insurer stops receiving premium payments and begins converting the accumulated assets into periodic disbursements for the annuitant. In a variable annuity, this also means converting all purchased units into annuity units. Once the contract is annuitized, the payout method is locked in and the principal cannot be accessed again.

Payout Phase

Often called the distribution phase, this final stage is where the insurer makes the scheduled payments to the holder. The duration depends on factors such as the chosen payout amount and the total balance built during accumulation. Whether the contract is an immediate annuity or a deferred annuity that has been turned into income, the available schedules (monthly, quarterly, semi‑annual or annual) are the same, and once a schedule is selected it cannot be altered.

In non‑qualified annuities, each payment consists of a mix of earnings and return of principal. The principal portion is tax‑free, while the earnings are taxed as ordinary income. Because withdrawals are taken on a last‑in‑first‑out basis, earnings are taxed before any principal is returned. All distributions remain fully taxable until the account balance is reduced to the original principal amount.

Payout Options

Annuitants can choose from several payout structures, though not every product offers every option. The calculator on this site only supports the two most common choices – a fixed periodic payment or a fixed‑term payout – which are displayed as separate tabs.

Lump-Sum

The lump‑sum choice lets the owner receive the entire annuity balance in one payment. This can be handy when the full amount is needed immediately. Provided the withdrawal occurs after age 59½, no early‑withdrawal penalty applies, although the distribution will be subject to income tax for that year, which may lessen its tax‑efficiency.

Fixed Length

A fixed‑term payout, sometimes labeled a period‑certain option, lets the holder specify a set number of years over which payments will be guaranteed. For example, a 60‑year‑old selecting a 10‑year certain will receive payments until roughly age 70. Payments are typically made monthly, but the term can be set for 10, 15, 20 years or more. If the term is too short or too long, the annuitant may either outlive the funds or leave a balance for heirs. This option does not depend on the annuitant’s lifespan.

Fixed Payment Amount

With a fixed‑payment plan the retiree decides how much will be paid each month. Those installments keep coming until the account balance runs out. As the calculator demonstrates, the length of time the payouts last hinges on the chosen amount and the total funds accumulated at annuitization. This scheme carries the same hazards as a fixed‑term payout: setting the monthly sum too low may cause the money to outlast the retiree, while setting it too high could leave a residual balance when the individual passes away. Each person must weigh their own circumstances to pick the most suitable alternative, keeping in mind the distinct risks each option entails.

Life Only

Under the life‑only structure the insurer disburses a stream of payments for as long as the annuitant lives. The amount is derived from the projected life expectancy – the longer the expected lifespan, the smaller each payment. A limitation of this choice is that the payment size cannot be adjusted, and there’s no assurance that the total annuity value will be fully paid out. Should the holder pass away within the first couple of years, any remaining balance is forfeited. Conversely, if the annuitant exceeds the assumed life expectancy, they may end up receiving more than the original accumulated sum.

Joint and Survivor

This variant guarantees that the annuity’s income persists for a surviving spouse after the primary annuitant’s death. Payments are calculated based on the combined life expectancies of both partners, which generally results in a lower monthly amount than a single‑life option. The stream stops when the second beneficiary dies. A broader version, often called joint‑life with last‑survivor, can extend coverage to additional dependents such as a child.

Life with Period Certain

The hybrid option blends a guaranteed period with a lifetime benefit. It provides a steady income for the annuitant’s lifetime while also ensuring a predetermined payment to a chosen beneficiary for a set number of years (e.g., ten years) if the annuitant dies before that interval ends. Should the annuitant survive beyond the certain period, no further payments are made to the beneficiary.

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