What is the difference between an annuity and just withdrawing from savings?

An insurer annuity guarantees payments (for life, with lifetime versions) but usually surrenders the principal and offers little flexibility. Self-managed withdrawals keep control and inheritance value but carry the risk of outliving the money. Many retirees mix both.

What rate should I use for annuity calculations?

For a fixed-period payout of invested money, use a conservative portfolio return (4-5%). For comparing an insurer's quote, compute the implied rate: if their monthly payment for your term is lower than this calculator's at a given rate, that rate difference is effectively their fee.

Annuity Calculator

Q: How much monthly income does an annuity pay?

It depends on the amount, rate, and payout period. $500,000 earning 5% paid over 25 years supports about $2,923 per month. Lifetime annuities from insurers price differently — by age and life expectancy — but fixed-period math gives a useful baseline.

Turn a lump sum into a stream of monthly income — or find out how long your money lasts at the payment you want.

Monthly payout

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Total paid out

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Interest earned during payout

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Annual income

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The annuity payout formula

PMT = P × r ÷ [1 − (1 + r)⁻ⁿ]

where P is the lump sum, r the monthly rate, and n the number of monthly payments — the same math as a loan payment, with you as the lender.

Worked example

$500,000 at 5% paid out over 25 years:

PMT = 500,000 × 0.004167 ÷ (1 − 1.004167⁻³⁰⁰) ≈ $2,923/mo

Total received: ≈ $877,000 — the extra $377,000 is interest the remaining balance keeps earning during payout.

Fixed-period math vs. insurer annuities

This calculator models a fixed-period payout of your own invested money — the balance earns your assumed return while payments draw it to zero. Insurance-company annuities differ in two ways: lifetime versions keep paying however long you live (pooling longevity risk), and their pricing embeds fees you can't see directly. A practical trick: get an insurer quote, then find the rate here that produces the same payment for your life expectancy — the gap between that implied rate and market rates is what the guarantee costs. For the flexible alternative, see the retirement withdrawal calculator and the 4% rule; for valuing a payout offer today, the present value calculator.

Frequently asked questions

How much monthly income does an annuity pay?

$500,000 at 5% over 25 years ≈ $2,923/mo. Insurer lifetime products price by age and longevity instead.

Annuity vs. withdrawing from savings?

Annuities guarantee income but give up principal and flexibility; self-managed withdrawals keep both but risk outliving the money. Mixing is common.

What rate should I use?

4–5% is a conservative payout-phase assumption; use the implied-rate trick above to evaluate insurer quotes.

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Note: Models a fixed-period, fixed-rate payout; insurer annuity quotes include mortality pricing and fees not modeled here. Not financial advice. Last reviewed: July 2026.