Immediate Annuity Calculator
Enter your lump sum, age, and expected interest rate to find out exactly how much monthly (or quarterly, or annual) income your immediate annuity will pay. Choose a payout type - period certain, life only, life with a guaranteed period, or joint life - and see a full payment schedule and total interest earned.
What is an immediate annuity?
An immediate annuity (also called a single premium immediate annuity, or SPIA) is a contract between you and an insurance company. You hand over a lump sum, and the insurer begins paying you a regular income - typically within one month. The payments are calculated so that over the coverage period, the insurer returns your principal plus interest at the agreed rate. Because payments start right away, SPIAs are popular with retirees who need a reliable income stream from a 401(k) rollover, an inheritance, or other savings.
How the payout is calculated
The calculation uses the standard present-value annuity formula: PMT = PV x r / (1 - (1 + r)^-n). PV is your lump sum, r is the periodic interest rate (annual rate divided by the number of payments per year), and n is the total number of payments. For life-based options the insurer estimates n from actuarial life tables for your age and gender, then blends in the cost of mortality risk. This calculator uses the U.S. Social Security Administration 2021 period life table to approximate life expectancy; actual insurer quotes will differ because they also build in a profit margin and their own mortality assumptions.
Choosing the right payout option
Life only gives you the highest payment because the insurer keeps any remaining balance when you die. Period certain guarantees payments for a fixed term (say 10 or 20 years) whether you live or not - if you die early, your beneficiary collects the rest. Life with period certain combines both: payments last for your lifetime or the certain period, whichever is longer, so heirs are protected if you die early. Life with cash refund (sometimes called a joint-life option in this calculator) guarantees that if you die before receiving back your entire premium, the remainder goes to your beneficiary as a lump sum. Each layer of protection costs a little - payments drop slightly compared with the plain life-only option.
Key factors that affect your payout
Age: older buyers receive higher payments because the expected payout period is shorter. Gender: women live longer on average, so their payments are slightly lower for the same premium under life-based options. Interest rates: insurers invest your premium in bonds, so higher prevailing rates translate to higher payouts - this is why shopping for quotes when rates are favorable matters. Premium size: payouts scale linearly with the amount invested. Insurer credit quality: a higher-rated insurer (A++ from AM Best) may offer slightly lower rates than a lower-rated one, which charges a higher rate to attract business - factor in the default risk when comparing.
Payout type comparison
| Payout type | Heirs protected? | Highest payment? | Best for |
|---|---|---|---|
| Life only | No | Yes | Maximizing income, no legacy concern |
| Period certain | Yes (remaining term) | Moderate | Fixed income for a set window |
| Life with period certain | Yes (certain period) | Slightly lower | Balance of income and legacy |
| Life with cash refund | Yes (unused premium) | Lower | Protecting original investment |
How each immediate annuity payout structure affects your income, heirs, and flexibility.
Frequently asked questions
How is an immediate annuity different from a deferred annuity?
An immediate annuity starts paying within one payment period (usually one month) of purchase. A deferred annuity has an accumulation phase - your money grows tax-deferred for years before the payout phase begins. Immediate annuities are purchased with a single lump sum (SPIA); deferred annuities can be funded with regular contributions over time.
Can I lose money with an immediate annuity?
With a life-only payout you could receive less than your premium if you die early - the insurer keeps the remainder. Period-certain and cash-refund options protect against this. The main risk is insurer insolvency, though state guaranty associations typically cover up to $250,000 per insurer. Spreading large sums across multiple insurers reduces concentration risk.
Are immediate annuity payments taxable?
If you purchase the annuity with pre-tax funds (such as a traditional IRA rollover), the full payment is taxable as ordinary income. If you use after-tax money, only the interest portion of each payment is taxable - the portion returning your original premium is excluded. This exclusion ratio is calculated at purchase and stays fixed for the life of the contract.
What interest rate should I use in this calculator?
Use the current quote rate offered by an actual insurer as your best estimate. If you don't have a quote yet, current SPIA rates for a 65-year-old typically range from 5% to 7% annually depending on market conditions and payout type. Rates are closely tied to 10-year Treasury yields, so they shift over time.
Can I add inflation protection to an immediate annuity?
Some insurers offer cost-of-living adjustment (COLA) riders that increase your payment by a fixed percentage (such as 3%) each year. This protects your purchasing power but means your initial payment is lower - sometimes significantly so. Run the numbers to see how long it would take for the rising payment to exceed what the flat payment would have been.
What happens to my annuity when I die?
Under a life-only contract, payments stop and nothing passes to heirs. Under period-certain, your beneficiary receives the remaining payments. Under life-with-cash-refund, the beneficiary receives a lump sum equal to the original premium minus total payments already made (if positive). A named beneficiary avoids probate regardless of option.