What is the difference between accumulation and payout?

Accumulation is the savings phase where money grows tax-deferred inside the annuity. Payout (or annuitization) is the distribution phase where the insurer sends you periodic checks. This page handles payout — for the accumulation phase use the annuity calculator.

Qualified vs non-qualified annuity — what is the tax difference?

A qualified annuity is held inside a retirement account (IRA, 401(k)), funded with pre-tax dollars. Every dollar withdrawn is taxed as ordinary income. A non-qualified annuity is funded with after-tax money: only the gain is taxable, and gains come out first under the LIFO rule. Required minimum distributions apply to qualified annuities but not to non-qualified ones during the owner's lifetime.

What is the LIFO rule?

For non-qualified annuities, withdrawals are treated as last-in, first-out: all gain comes out before any return of basis. That means early withdrawals are 100% taxable as ordinary income until you have pulled out all the growth. The rule does not apply once the contract is annuitized — annuitized payments use an exclusion ratio that blends basis and gain evenly.

What is the 10% early-withdrawal penalty?

Withdrawals of taxable amounts from an annuity before age 59 1/2 are generally subject to a 10% IRS penalty on top of regular income tax. Common exceptions include death, disability, substantially equal periodic payments under IRC 72(q), and annuitization for life.

What payout options are typically available?

Lump sum, fixed length (period certain), fixed payment until exhausted, life only, joint and survivor, and life with period certain. Life only pays the most per month but stops at death; joint and survivor stretches over two lives; life with period certain guarantees a minimum number of payments even if you die early.

Is annuitization reversible?

Almost never. Once you annuitize you exchange your account value for a payment stream and the insurer keeps the principal. Most insurers will not let you commute the stream back to cash. A handful of contracts offer a commutation option for an extra fee — read the contract carefully before electing.

How does a 1035 exchange work in payout?

Section 1035 lets you swap one non-qualified annuity for another tax-free, including partial 1035 exchanges since 2003. It only applies before annuitization — once income payments begin, the stream cannot be 1035-exchanged. Always check that a new contract's surrender period and fee load are worth the swap.

How accurate is this calculator?

The math is the standard ordinary-annuity present-value formula and is exact given the inputs. Real insurance contracts also subtract mortality and expense costs and may use slightly different compounding conventions, so the actual quote from an insurer will differ. Use this as a planning estimate, not a guaranteed quote.

Annuity Payout Calculator - Free Online

What the annuity payout calculator does

The annuity payout calculator handles the distribution side of an annuity contract. Pick Fixed Length when you know how long the income must last and want to know the payment; pick Fixed Payment when you know what check you want and want to know how long the principal will support it. The accumulation side is handled by the annuity calculator.

How it works — the present-value formulas

Both modes use the standard ordinary-annuity present-value relationship:

PV = PMT × [1 − (1 + r)^−n] / r

In MathML notation:

P V = P M T \cdot \frac{1 - (1 + r)^{- n}}{r}

where PV is the starting principal, PMT is the periodic payment, r is the per-period rate, and n is the number of periods. Fixed-length mode solves for PMT:

PMT = PV × r / [1 − (1 + r)^−n]

Fixed-payment mode solves for n:

n = −ln(1 − PV × r / PMT) / ln(1 + r)

If PMT is not greater than PV × r the payment never depletes the principal (interest covers it forever) — the calculator flags that case.

Key concepts

Accumulation, annuitization, and payout

Three phases describe an annuity's life. Accumulation is the savings stage modeled by the annuity calculator. Annuitization is the irrevocable choice to convert the account value into a stream of guaranteed payments. Payout is the stream itself. You can be in payout without annuitizing — by simply taking systematic withdrawals — and the calculator on this page models both cases the same way.

Qualified vs non-qualified annuities

A qualified annuity sits inside an IRA or 401(k), funded with pre-tax dollars. Every dollar that comes out is taxed as ordinary income, and required minimum distributions apply once you hit the RMD age. A non-qualified annuity is funded with after-tax money. Withdrawals before annuitization follow the LIFO rule: gain comes out first and is fully taxable; the basis you put in comes out tax-free only after all the gain is exhausted. Once annuitized, an exclusion ratio assigns each payment a tax-free portion based on basis ÷ expected total payments.

Early withdrawal rules

Withdrawals of taxable amounts before age 59 1/2 trigger a 10% federal penalty on top of ordinary income tax, with limited exceptions (death, disability, substantially equal periodic payments under IRC 72(q), terminal illness). State penalties can also apply. Surrender charges from the contract stack on top of these tax penalties.

Annuitization is irrevocable

When you annuitize, you trade your account value for a payment promise from the insurer. With rare exceptions there is no way to commute that promise back to cash, change beneficiaries, or skip payments. Some contracts offer a commutation rider, but it usually costs more in foregone payment than it is worth. Before you sign the annuitization form, run the numbers both ways here and on the retirement calculator.

Payout options

Option	How it works	Best for
Lump sum	Take the entire account value at once, less any surrender charges and tax.	Specific large need (paying off mortgage, gifting); accepts giving up the income guarantee.
Fixed length (period certain)	Level payment for a chosen number of years (e.g. 10, 15, 20). Balance is zero at the end.	Bridging a defined gap, like the years before Social Security or a pension begins.
Fixed payment	You set the dollar amount; the annuity pays until the principal is exhausted.	Hitting a specific monthly target; willing to accept that payments stop when the money runs out.
Life only	Payments for as long as you live, then stop. Highest monthly payout per dollar of principal.	Single retirees with no heirs who want maximum income.
Joint and survivor	Payments continue (often at 50%, 75% or 100%) until the second of two annuitants dies.	Married couples; protects the surviving spouse.
Life with period certain	Life payments, but guaranteed for a minimum number of years (e.g. 10 or 20). If you die early, the beneficiary collects the rest of the certain period.	Anyone who wants a life payout but worries about dying early.

Worked example 1 — fixed length

Carlos retires at age 65 with $500,000 inside a non-qualified deferred annuity crediting 4% during payout. He elects a 20-year period certain, paid monthly. With r = 0.04/12 = 0.003333 and n = 240:

(1+r)^−n = 1.003333^−240 ≈ 0.4508
PMT = 500,000 × 0.003333 / (1 − 0.4508) ≈ $3,029.94/month
Total payments: 240 × 3,029.94 ≈ $727,186
Total interest credited: 727,186 − 500,000 ≈ $227,186

Worked example 2 — fixed payment

Priya has the same $500,000 at 4% but wants exactly $3,500 per month. The calculator solves for n:

PV × r = 500,000 × 0.003333 = $1,666.67 per month of interest at the start.
Since 3,500 > 1,666.67, the principal will be exhausted in finite time.
n = −ln(1 − 500,000 × 0.003333 / 3,500) / ln(1.003333) ≈ 195 months ≈ 16 years 3 months
Total payments: 195 × 3,500 ≈ $682,500 — including ~$182,500 of interest.

Edge cases

Zero interest rate. The present-value formula degenerates; the calculator uses PMT = PV / n for fixed-length and n = PV / PMT for fixed-payment.
Payment ≤ interest. If the requested fixed payment is less than or equal to the period's interest accrual (PV × r), the balance never falls. The calculator flags this as "principal never depletes" rather than returning a meaningless huge number.
Early-withdrawal age trap. If you start payouts before age 59 1/2, taxable amounts are hit by a 10% federal penalty plus ordinary income tax. The exception is substantially equal periodic payments under IRC 72(q), which must continue at least until age 59 1/2 or for 5 years, whichever is longer.
LIFO bite on non-annuitized withdrawals. If you take random withdrawals from a non-qualified annuity instead of annuitizing, the first dollars out are 100% gain, taxed as ordinary income. Annuitizing spreads the basis recovery evenly across payments via the exclusion ratio.
Inflation. A level payment loses real purchasing power every year. Over a 20-year horizon at 3% inflation, the last payment buys only 55 cents on the dollar versus the first. Some annuities offer a CPI-linked rider for an additional fee.

What to do with the result

Stress-test rate assumptions. Drop the payout rate by 1% and see how much the payment falls. Insurer credited rates can move.
Compare against systematic withdrawals. Run the same balance through the retirement calculator with a 4% sustainable rate. If the annuity guarantee is materially higher, the longevity insurance has value; if not, keeping the money invested may dominate.
Layer Social Security. Most retirees need annuity income plus Social Security, not annuity income alone. Run the SSA estimator and add it on top.
Coordinate with RMDs for qualified annuities. If the contract is inside an IRA, the RMD calculator shows your minimum required distribution at the current tax year.
Confirm survivor coverage. For couples, a joint-and-survivor option pays less per month than life-only but protects the survivor — usually the right trade-off.

Cross-links

For the accumulation phase, switch to the annuity calculator. Related retirement tools: the IRA calculator, the 401(k) calculator, the retirement calculator, and the RMD calculator for required minimum distributions as of the current tax year.

Annuity Payout Calculator

Annual schedule