Annuity Calculator

Most annuity calculators do one thing: multiply a lump sum by a formula and hand you a monthly number. That single figure tells you almost nothing about whether you are making a smart financial decision.

This Advanced Annuity Calculator is built differently. It is an 11-module analytical suite that goes far beyond basic present value math. You can calculate payments, solve for unknown interest rates, project inflation-adjusted purchasing power, model tax drag on real after-tax income, plan your full decumulation waterfall, and stress-test three competing annuity offers side by side — all from one unified interface, with every result dynamically visualized through interactive charts.

Whether you are a retiree comparing insurance company offers, a financial advisor modeling income replacement strategies, or someone who just received a pension buyout offer, this tool gives you the complete analytical foundation to make a confident, well-informed decision.

Use this free Annuity Calculator — no sign-up required, no registration, full access to all 11 modules immediately.

What Is an Annuity?

An annuity is a financial contract between an individual and an insurance company or financial institution. You make a lump sum payment or a series of contributions, and in return the institution pays you regular income over a defined period or for the remainder of your life.

Annuities are primarily used as retirement income vehicles — they eliminate the risk of outliving your savings, which is their most critical benefit over other investment structures.

Annuity — Definition An annuity is a financial product that converts a sum of money into a series of regular payments distributed over a defined period or for the remainder of a person’s life.

Types of Annuities

There are five major types of annuities, each serving different financial goals and risk tolerances.

Fixed Annuity — Provides guaranteed payments at a fixed interest rate regardless of market conditions. The most predictable and widely purchased option.

Variable Annuity — Payments fluctuate based on the performance of underlying investment portfolios. Returns can be higher but carry substantially more risk and typically include Mortality & Expense (M&E) charges.

Indexed Annuity — Returns are linked to a market index such as the S&P 500, with a built-in floor protecting against losses. Offers growth potential with limited downside exposure.

Immediate Annuity — Payments begin almost immediately after a lump sum is deposited. Typically used by retirees who need income right away. The process of converting a lump sum into a permanent income stream is called annuitization.

Deferred Annuity — Contributions grow during an accumulation phase with payments beginning at a future date you select. These are ideal candidates for a 1035 Exchange — a tax-free transfer between annuity contracts that avoids triggering a taxable event when switching providers.

How to Use the 11-Module Annuity Analysis Suite

What separates this tool from every generic annuity calculator online is its auto-fill architecture. When you complete a calculation in Module 1, the resulting principal, rate, and term values are automatically carried forward into subsequent modules. You build a single financial scenario once and then progressively deepen your analysis — from basic payment math all the way to inflation-adjusted tax modeling and multi-scenario comparison — without re-entering data.

Here is what each module does and when to use it.

Modules 1 & 2 — Basic Valuation and Payment Finding

Module 1: Present Value & Future Value

These are the foundational annuity calculations that all other modules build upon.

The Present Value (PV) formula tells you the current worth of all future annuity payments, discounted back to today using an assumed interest rate. This is the number an insurance company uses to price your contract.

PV = PMT × [1 − (1+r)⁻ⁿ] ÷ r

The Future Value (FV) formula tells you how much a series of regular contributions will accumulate to at a specific future date — critical for planning deferred annuities during the accumulation phase.

FV = PMT × [(1+r)ⁿ − 1] ÷ r

Both calculations depend on the Time Value of Money (TVM) — the foundational principle that a dollar available today is worth more than a dollar received in the future, because today’s dollar can be invested immediately to earn returns. Every annuity formula is a structured application of this principle.

Module 2: Payment Finder

Module 2 reverses the standard formula. Instead of entering a principal and calculating the payment, you enter your target monthly income and the module calculates the exact lump sum required to fund it at your specified rate and term. This is the single most practical module for retirement planning — it immediately answers the question most retirees actually have: “How much do I need to save to guarantee $X per month?”

Ordinary Annuity vs. Annuity Due

Both modules support both annuity structures:

Comparison	Ordinary Annuity	Annuity Due
Payment Timing	End of each period	Beginning of each period
Present Value	Lower	Higher by factor of (1+r)
Common Use Case	Mortgages, retirement income	Rent, lease payments
Formula Adjustment	Standard formula	Multiply result by (1+r)

Select Annuity Due when modeling lease or rent agreements. Select Ordinary Annuity for retirement income contracts — it is the more common structure in insurance-issued annuity products worldwide.

Modules 3 & 4 — Solving for Interest Rates and Time Periods

This is where this calculator separates itself from every basic tool online. Most annuity calculators only solve forward — give us your rate and we will tell you your payment. Modules 3 and 4 solve backward.

Module 3: Interest Rate Solver

An insurance company quotes you a monthly payment on your $400,000 deposit. Before you sign, you want to know: what implied annual percentage rate (APR) is embedded in that offer?

Module 3 back-calculates the implied interest rate from a known principal, payment amount, and term. It returns both the APR (nominal rate, used in contracts) and the Effective Annual Rate (EAR) — which accounts for compounding frequency and is the true apples-to-apples comparison metric when evaluating multiple insurance company offers side by side.

EAR is always slightly higher than APR for compounding frequencies greater than once per year. A contract advertising 5% APR with monthly compounding has an actual EAR of 5.116%. Module 3 makes this transparent so you can compare offers honestly.

Module 4: Time Period Solver

Enter your current balance, your planned withdrawal amount, and the assumed growth rate — Module 4 calculates exactly how many months or years your funds will last. This is essential for validating whether a proposed annuity term actually aligns with your life expectancy and retirement cash flow needs.

Modules 5 & 6 — Accumulation Growth and Decumulation Planning

Module 5: Accumulation Phase Projector

During the years before you begin taking income, a deferred annuity grows through compound interest. Module 5 projects this growth phase dynamically — showing how your contributions and compound earnings accumulate over time through a visual growth curve.

A deferred annuity earning 5% annually will roughly double in approximately 14.4 years, following the Rule of 72. Starting earlier dramatically amplifies this effect. Module 5 makes the compounding trajectory visible so you can evaluate whether your accumulation timeline is sufficient before committing to annuitization.

Module 6: Decumulation Waterfall & Sustainable Withdrawal Rate

Accumulation is the easy half. Decumulation — the disciplined drawdown of your accumulated balance throughout retirement — is where most retirement income strategies fail.

Module 6 models your decumulation waterfall: the period-by-period balance depletion showing how much of each payment is interest versus principal return, and precisely when the balance reaches zero. The visual Balance Depletion Curve makes this trajectory immediate and intuitive.

This module also calculates your Sustainable Withdrawal Rate (SWR) — the maximum annual percentage you can withdraw from your balance without depleting it before the end of your target period. The widely cited 4% Rule (withdraw 4% annually, adjusted for inflation) is the most referenced SWR benchmark in retirement planning research, though optimal SWRs vary by asset allocation, time horizon, and projected returns. Module 6 calculates your personalized SWR based on your actual inputs rather than a generic rule of thumb.

The Hidden Wealth Killers: Inflation and Taxes

The two most dangerous threats to fixed annuity income are not the stock market and not interest rates. They are inflation and taxes — both of which silently erode the real purchasing power of a payment that looks perfectly adequate on paper at retirement but may become inadequate a decade later.

Module 7 — Inflation-Adjusted Purchasing Power

A fixed annuity paying $2,000 per month today does not pay $2,000 per month in real terms in 20 years. At 3% annual inflation, that same $2,000 has a purchasing power equivalent to just $1,107 in today’s dollars by year 20. This is the silent wealth killer that most annuity articles — and most annuity salespeople — fail to quantify honestly.

Module 7 addresses this directly by calculating the Real Present Value of your annuity alongside the Nominal Present Value.

The underlying calculation uses the Fisher Equation:

Real Rate = [(1 + Nominal Rate) ÷ (1 + Inflation Rate)] − 1

For example, a 5% nominal annuity rate in a 3% inflation environment delivers a real rate of approximately 1.94% — not 5%. The difference between the Nominal PV (shown in blue in the tool) and the Real PV (shown in green) quantifies the exact purchasing power you are sacrificing to inflation over the full annuity term.

Why this matters for fixed annuities specifically: Unlike Social Security (which includes a Cost-of-Living Adjustment, or COLA) and some pension plans (which offer inflation riders), a standard fixed immediate annuity pays the same nominal dollar amount for its entire term. Module 7 makes the cumulative inflation damage visible so you can decide whether an inflation rider — which reduces your initial payment but maintains real purchasing power — is worth its cost.

Module 10 — Tax Impact Analysis: Federal, State, and Net After-Tax Income

Taxes on annuity income are frequently misunderstood, and that misunderstanding consistently leads retirees to overestimate their actual take-home pay.

Qualified vs. Non-Qualified Annuities

The tax treatment of your annuity payments depends entirely on how the annuity was funded:

Qualified Annuities — Funded through tax-advantaged accounts such as an IRA or 401(k). Because contributions were made with pre-tax dollars, the entire payment amount is taxable as ordinary income when received. There are no exclusions.

Non-Qualified Annuities — Funded with after-tax dollars. Because you already paid tax on your principal, only the interest portion of each payment is taxable. The return of your original principal is tax-free. The mechanism that determines this split is the Exclusion Ratio.

The Exclusion Ratio

The Exclusion Ratio is the IRS-defined formula for calculating the tax-free percentage of each non-qualified annuity payment:

Exclusion Ratio = Investment in Contract ÷ Expected Return

Where Investment in Contract is your after-tax cost basis (what you paid in) and Expected Return is the total payments you are projected to receive over the annuity’s term.

Example: You invest $200,000 (after-tax) into an immediate annuity that will pay a total of $400,000 over its term. Your Exclusion Ratio is 200,000 ÷ 400,000 = 50%. This means 50% of every payment is a tax-free return of principal, and 50% is taxable interest income.

Once your total tax-free principal has been fully recovered, 100% of subsequent payments become taxable. Module 10 tracks this threshold automatically.

State Tax Drag

Several states offer full or partial exemptions on annuity income for retirees above certain ages, while others tax it at the full ordinary income rate. Module 10 allows you to input your federal and state tax rates separately to calculate your True Effective Tax Rate and your Net After-Tax Monthly Income — the number that actually matters for budgeting your retirement.

All cost figures in the tool are displayed in red for immediate visual contrast against the nominal (blue) and real (green) income figures, making the combined impact of taxes and inflation visually unmistakable.

Strategic Decision-Making Modules

Module 8 — Annuity vs. Lump Sum Comparison

This is one of the most consequential decisions in retirement planning, and it is frequently made poorly because people compare nominal values without accounting for opportunity cost of capital — what the lump sum could earn if invested rather than annuitized.

Module 8 computes the crossover point: the exact date at which cumulative annuity payments received equals the original lump sum, and then continues to project the cumulative advantage (or disadvantage) of the annuity over the comparison investment portfolio.

Choose an annuity when: You want guaranteed income that cannot be outlived. You lack confidence in actively managing a large lump sum. You want to eliminate Sequence of Returns Risk — the danger that a market downturn in the early years of retirement permanently depletes a portfolio before it can recover. Annuities completely eliminate this risk for the portion of income they cover.

Choose a lump sum when: You are in poor health with a reduced life expectancy. You have strong investment discipline and diversified income from other sources. You want to maximize the inheritance available to beneficiaries, since life-only annuities leave nothing to heirs.

The role of Mortality Credits: One often-overlooked benefit of lifetime annuities is the Mortality Credit — the additional yield generated through actuarial risk pooling. When some annuity holders die early, the insurance company redistributes those unused reserves to surviving policyholders, effectively boosting their yield above what a comparable fixed-income investment would produce. This is a genuine financial advantage of annuities that self-managed investment portfolios cannot replicate. Module 8 incorporates this factor in its comparison modeling.

Module 9 — Retirement Income Planner & Income Replacement Ratio

Most retirees will fund their retirement from multiple sources: Social Security, a pension (if applicable), annuity income, and portfolio withdrawals. Module 9 allows you to stack these sources and calculate your Income Replacement Ratio — the percentage of your pre-retirement income that your total retirement income sources will replace.

Financial planning research suggests a replacement ratio of 70–85% is typically sufficient for a comfortable retirement, though this varies significantly based on lifestyle, healthcare costs, and whether your mortgage is paid off. Module 9 shows precisely where your current plan lands relative to this benchmark and identifies the income gap you need to fill with additional savings, delayed retirement, or supplemental annuity income.

The Social Security Bridge Strategy: One common use of Module 9 is modeling an annuity as a bridge income source — funding five to eight years of retirement income from an annuity while delaying Social Security claim age from 62 to 70. Each year you delay Social Security increases your benefit by approximately 8%, making the delay strategy highly valuable for anyone in good health with reasonable life expectancy. Module 9 quantifies this tradeoff precisely.

Module 11 — Multi-Scenario Comparison

You have received three quotes from three different insurance companies. They differ in rate, term, and payout structure. Which one wins?

Module 11 places up to three complete annuity scenarios side by side, computing the nominal present value, real inflation-adjusted value, after-tax net income, and total lifetime payout for each simultaneously. The stacked bar chart visualization makes the comparison immediate — you can see at a glance which scenario delivers superior total value across all four dimensions, rather than cherry-picking the metric that makes one option look best in isolation.

This is the module that eliminates the information asymmetry between sophisticated insurance carriers and individual buyers.

The Core Annuity Formulas

Standard Payment Formula

Annuity Payment = PV × [r(1+r)ⁿ] ÷ [(1+r)ⁿ − 1]

Where PV = present value (lump sum invested), r = periodic interest rate, n = total number of payment periods.

Future Value Formula

FV = PMT × [(1+r)ⁿ − 1] ÷ r

Present Value Formula

PV = PMT × [1 − (1+r)⁻ⁿ] ÷ r

Compounding Frequency and the EAR Adjustment

When payments are monthly, the annual interest rate must be divided by 12 and the term in years must be multiplied by 12. Using the annual rate directly with monthly periods is one of the most common — and most financially significant — calculation errors in retirement planning. The difference on a $300,000 annuity over 20 years can exceed $40,000 in cumulative error.

The EAR (Effective Annual Rate) converts any compounding frequency to a true annual equivalent:

EAR = (1 + r/n)ⁿ − 1

Where r = nominal annual rate and n = compounding periods per year.

Practical Example: Full 11-Module Analysis

Consider James, a 62-year-old retiree with $300,000 to invest in a fixed immediate annuity at 5% annual interest for 20 years.

Input	Value
Principal (PV)	$300,000
Annual Interest Rate	5.00%
Term	20 Years (240 months)
Payment Frequency	Monthly
Annuity Type	Ordinary Annuity

Monthly Payment (Module 1):

Using the annuity payment formula with a monthly rate of 0.4167% and 240 periods:

Monthly Payment = $300,000 × [0.004167 × (1.004167)²⁴⁰] ÷ [(1.004167)²⁴⁰ − 1] = $1,979.87

Result	Amount
Monthly Payment	$1,979.87
Total Payments (240 months)	$475,168.80
Total Interest Earned	$175,168.80
Original Principal	$300,000.00

Inflation-Adjusted Real Value (Module 7): Assuming 3% annual inflation, the Fisher Equation yields a real rate of approximately 1.94%. By year 20, James’s $1,979.87 payment has a real purchasing power of approximately $1,097 in today’s dollars — a 45% erosion in real income.

After-Tax Net Income (Module 10): Assuming this is a non-qualified annuity with a $300,000 cost basis and $475,168.80 expected return, the Exclusion Ratio is 63.1%. So approximately 63% of each payment is a tax-free return of principal, and 37% is taxable. At a combined effective tax rate of 22%, James’s true net monthly take-home is approximately $1,819 — not $1,979.

The full multi-module analysis reveals that what looks like $2,000 per month is actually $1,097 in real purchasing power after inflation, with a net cash receipt of $1,819 after taxes. This is the complete picture that basic annuity calculators never show.

Annuity Rates — What to Expect

Annuity payout rates are driven by prevailing interest rates, the issuing insurance company’s financial strength, your age at purchase, and the selected payout option.

Annuity Type	Typical Rate Range	Key Characteristic
Fixed Immediate	4.0% – 6.5%	Guaranteed, predictable payments
Fixed Deferred	3.5% – 5.5%	Tax-deferred accumulation phase
Variable	Market-dependent	Higher potential, higher volatility
Indexed	3.0% – 7.0%	Index-linked with cap and floor

Older buyers typically receive higher payout rates because the insurance company projects fewer total payments over a shorter remaining life expectancy — this is the Mortality Credit advantage quantified. Always obtain quotes from a minimum of three carriers before committing. A 0.50% rate difference on a $300,000 annuity over 20 years can represent more than $15,000 in total lifetime income.

Understanding Annuity Fees and Surrender Charges

Before purchasing any annuity, understanding the full fee structure is critical to accurately evaluating true net returns.

Surrender Charges — Most deferred annuities impose early withdrawal penalties for accessing funds within the first 5 to 10 contract years. Surrender charge schedules typically start at 7–8% in year one and decline by approximately 1% per year.

Mortality and Expense Risk Charges (M&E) — Common in variable annuities, typically ranging from 0.50% to 1.50% of account value annually. These fund the insurance company’s longevity guarantee obligations.

Administrative Fees — Annual account maintenance charges typically ranging from $25 to $100 per year depending on the contract structure.

Rider Fees — Optional benefit riders such as Guaranteed Lifetime Withdrawal Benefits (GLWBs), death benefit enhancements, and inflation adjustment riders add 0.25% to 1.00% annually to total costs. GLWBs are particularly valuable in variable annuities because they guarantee a minimum income floor regardless of account performance.

Always request a complete fee disclosure schedule before signing any annuity contract. High cumulative fees on variable annuities can reduce net returns to levels that make fixed annuities more attractive despite their lower headline rate.

Tax Treatment of Annuities — Complete Guide

Non-Qualified Annuities Contributions made with after-tax dollars. During payout, only the interest portion of each payment is taxable — the Exclusion Ratio determines the exact split. Tax-deferred growth during accumulation allows faster compounding compared to taxable accounts.

Qualified Annuities Funded through tax-advantaged retirement accounts (IRA, 401(k), 403(b)). Because contributions were made pre-tax, the entire payment amount is taxable as ordinary income upon receipt. No Exclusion Ratio applies.

Tax-Deferred Growth All annuities — qualified and non-qualified — grow tax-deferred during the accumulation phase. You pay no taxes on earnings until withdrawals begin. For high-income savers who have already maxed out their 401(k) and IRA contributions, a non-qualified deferred annuity provides a third tier of tax-deferred accumulation with no annual contribution limit.

10% Early Withdrawal Penalty Like other tax-advantaged retirement products, annuity withdrawals before age 59½ are subject to a 10% IRS early distribution penalty in addition to ordinary income tax on the gain portion.

Annuity Payout Options

Most annuity contracts offer several payout structures that balance income level against survivor protections and duration guarantees.

Life Only — Maximum monthly payment. Payments cease at death regardless of total received. Highest payout, zero residual value to beneficiaries.

Life with Period Certain — Payments guaranteed for a minimum period (commonly 10 or 20 years) even if you die early. Payments continue to beneficiaries through the guaranteed period. Slightly lower monthly amount than life-only.

Joint and Survivor — Payments continue for both you and a spouse. After the first spouse passes, payments continue at a reduced percentage (commonly 50%, 67%, or 75%) for the surviving spouse’s lifetime.

Fixed Period — Payments continue for a defined number of years regardless of survival status. Common in structured legal settlements. No longevity protection beyond the fixed term.

Common Mistakes When Buying Annuities

Mistake 1 — Not Adjusting for Payment Frequency If payments are monthly, divide the annual rate by 12 and multiply the term in years by 12. Using the annual rate directly with monthly periods produces significantly incorrect results. Module 1 handles this automatically, but understanding why matters when reviewing contract documents.

Mistake 2 — Ignoring Inflation Drag A fixed annuity payment that covers your expenses comfortably at age 65 may cover only 65–70% of the same expenses by age 80. Always run Module 7 before committing to a fixed payout rate, and seriously evaluate whether an inflation rider’s cost is justified by your projected longevity.

Mistake 3 — Confusing Present Value and Future Value Present value tells you what future payments are worth today. Future value tells you what current contributions will grow to later. Mixing these two concepts produces incorrect financial projections. Module 1 makes the distinction explicit with labeled outputs for each.

Mistake 4 — Underestimating Tax Liability Many retirees budget based on their gross annuity payment without calculating the true net after-tax income. Always run Module 10 to determine your actual take-home figure, accounting for both federal and state tax obligations.

Mistake 5 — Overlooking Surrender Periods Purchasing a deferred annuity with money you may need within five years exposes you to significant surrender charges. Always match the annuity term to your actual liquidity needs and maintain a separate emergency reserve outside the contract.

Mistake 6 — Evaluating Only One Carrier Payout rates vary substantially between insurance companies for identical contract structures. Always use Module 11’s multi-scenario comparison before making a final decision. The difference of even 0.50% on a $300,000 annuity over 20 years represents material lifetime income.

Real-World Applications

Retirement Income Planning Financial advisors use this suite to model how much guaranteed monthly income a client’s retirement savings will generate and whether that income — after accounting for inflation and taxes — meets their income replacement ratio target.

Structured Settlement Valuation Legal settlements frequently delivered as structured annuity streams can be evaluated using Module 8’s lump sum vs. annuity comparison to determine whether a proposed offer represents fair present value.

Pension Buyout Analysis Module 8 accurately models whether a one-time lump sum pension buyout offer or lifetime monthly pension benefit delivers greater total lifetime value, incorporating mortality expectations and investment return assumptions.

Lottery Payment Comparison Large lottery prizes are paid as either immediate lump sums or 20-to-30-year annuity schedules. Module 11’s multi-scenario comparison combined with Module 10’s tax analysis reveals the true after-tax comparison between both options.

Insurance Offer Evaluation Module 3’s interest rate solver lets you back-calculate the implied APR on any insurance company’s payment quote, making it possible to compare competing offers using a single objective metric.

Key Takeaway

An advanced annuity calculator removes complexity from one of the most important financial decisions you will ever make. By modeling not just what you will receive, but what it will actually be worth after inflation erodes purchasing power and taxes reduce take-home income, this 11-module suite gives you the complete analytical foundation that basic calculators entirely omit. Use the modules sequentially: establish your baseline payment in Module 1, solve for unknowns in Modules 3 and 4, stress-test your real income against inflation and taxes in Modules 7 and 10, and finalize your decision with multi-scenario comparison in Module 11.

Explore our free Compound Interest Calculator to model how your retirement savings grow during the accumulation phase before converting them into a guaranteed annuity income stream. Also consider our Present Value Calculator to discount any future payment stream back to today’s dollars. And our Inflation Calculator to model the long-term loss of purchasing power on fixed income sources.

Frequently Asked Questions

What is an annuity calculator used for?

An annuity calculator computes regular payment amounts, present values, future values, total interest earned, and — in an advanced suite like this one — inflation-adjusted real values, after-tax net income, and multi-scenario comparisons. It helps retirees, investors, and financial planners make fully informed decisions about converting lump sums into structured income streams.

What is the difference between ordinary annuity and annuity due?

An ordinary annuity makes payments at the end of each period while an annuity due makes payments at the beginning. Annuity due produces a slightly higher present value because each payment is received one period earlier, which is reflected by multiplying the ordinary annuity result by (1 + r).

How does compound interest affect annuity growth?

Compound interest accelerates deferred annuity accumulation because each period’s earnings generate additional returns in subsequent periods. Over long time horizons, the compounding effect dramatically increases total accumulated value compared to simple interest, which is why starting a deferred annuity early is strategically powerful.

What is a good interest rate for a fixed annuity?

Fixed annuity rates between 4% and 6.5% are generally considered competitive in moderate interest rate environments. Always compare the EAR (not just the APR) across multiple carriers, and always evaluate the net rate after fees rather than the gross headline rate.

How is the time value of money related to annuities?

The time value of money is the foundational principle behind all annuity calculations. Since money available today is worth more than future money, annuity formulas discount future payment streams back to present value using an interest rate that reflects the opportunity cost of capital over time.

What is an exclusion ratio and how does it affect taxes?

The exclusion ratio is the IRS method for determining the tax-free percentage of non-qualified annuity payments. It is calculated as your after-tax cost basis divided by your total expected return. Payments up to that ratio are tax-free returns of principal; amounts beyond it are taxable interest income.

What is the Fisher Equation and why does it matter for annuities?

The Fisher Equation (Real Rate = [(1 + Nominal Rate) ÷ (1 + Inflation Rate)] − 1) separates the nominal interest rate embedded in an annuity contract from the true inflation-adjusted real rate of return. It reveals that a 5% annuity in a 3% inflation environment delivers only approximately 1.94% real purchasing power growth — a critical distinction for fixed-income retirees.

Should I choose a lump sum or annuity payout?

The better choice depends on your health status, investment discipline, other income sources, estate planning goals, and Sequence of Returns Risk exposure. Annuities provide guaranteed income security and mortality credit yield enhancement. Lump sums offer greater flexibility and inheritance value. Module 8 quantifies both options with full opportunity cost analysis.

What happens to my annuity when I die?

The outcome depends on your selected payout option. Life-only annuities terminate at death. Period-certain options continue payments to beneficiaries through the guaranteed period. Joint-and-survivor options continue reduced payments to a surviving spouse for their lifetime.

Are annuity payments taxable?

Yes, but the taxable portion depends on funding source. Non-qualified annuity payments are partially taxable — the Exclusion Ratio determines how much of each payment is a tax-free return of principal versus taxable interest income. Qualified annuity payments funded with pre-tax retirement dollars are fully taxable as ordinary income upon distribution.

What is a Guaranteed Lifetime Withdrawal Benefit (GLWB)?

A GLWB is an optional rider on variable and indexed annuities that guarantees you can withdraw a minimum percentage of your benefit base annually for life, even if the underlying account value drops to zero due to market losses. It provides a floor of income security on products that would otherwise carry full market risk. GLWB riders typically add 0.50% to 1.00% to annual costs.

What is a 1035 Exchange?

A 1035 Exchange is a tax-free transfer from one annuity contract to another (or from a life insurance policy to an annuity). It allows you to move to a better-performing or lower-cost contract without triggering a taxable event on accumulated gains. This is a valuable tool for anyone holding an older annuity with unfavorable rates or high fees.

 

About This Calculator:

This annuity calculator is part of Intelligent Calculator’s Financial Planning suite — built on actuarial present value principles, time value of money methodology, Fisher Equation inflation modeling, IRS Exclusion Ratio tax frameworks, and standard financial planning standards. Free. No sign-up required.