Annuity Payout Calculator

An annuity payout, in the sense this calculator uses, is the reverse of building up savings: you start with a lump sum and draw it down in equal, regular payments until it reaches zero. Three quantities describe a fixed-period payout completely — the payout amount, the number of periods, and the periodic growth rate — and fixing any two determines the third. This tool solves for whichever one you leave unfixed, in either of two directions: given a term in years, how large can each payout be; or given a payout amount, how many years will it last. The payout formula is the standard level-payment annuity equation solved for payment: PMT equals PV times the periodic rate times one plus the periodic rate to the power n, all divided by one plus the periodic rate to the power n minus one. It is the identical equation a loan payment uses, run in reverse — a loan pays a lender down to zero out of a borrower's income; a payout annuity pays a balance down to zero into the owner's pocket. When the rate is exactly zero the formula divides by zero, and the correct answer — payout equals principal divided by the number of periods — is handled as an explicit branch rather than left to blow up. Solving in the other direction, for the number of periods a fixed payout lasts, has no algebraic shortcut: n equals the natural log of payout divided by (payout minus principal times the periodic rate), over the natural log of one plus the periodic rate. That denominator is the reason a payout has to clear a floor. If the payout is less than or equal to the interest the balance earns in a single period, the balance never shrinks — it is a de facto perpetuity — and no finite n exists, so the calculator rejects that input with a field message rather than a nonsense number. Payout frequency changes the periodic rate the same way it does for a loan: a 6% annual rate paid monthly becomes a 0.5% periodic rate compounded twelve times, not a 6% rate paid once. More frequent payouts pull money out earlier within each year, leaving less balance invested between withdrawals, which is why a monthly schedule of the same present value and term pays out slightly LESS in total, nominal dollars than an annual schedule of that same balance. The depletion schedule shown below is not the same arithmetic as the closed-form payout formula — it is a period-by-period simulation, rolled up into annual rows: apply growth to the current balance, subtract the payout (capped at whatever balance remains, so the account never goes negative), and carry the result forward. Comparing the simulated ending balance against zero is a useful sanity check on the formula itself. What this tool does not model is just as important. There is no mortality table and no life-expectancy assumption anywhere in it: this is a fixed-period, period-certain payout, not a lifetime-income annuity. An insurer pricing a genuine lifetime annuity pools longevity risk across many policyholders and can therefore pay a rate that would run out in fewer years if applied to a fixed term instead, precisely because some policyholders live longer than others and some die sooner. Nor does this tool adjust for inflation, taxes, or a rate that changes over time — the growth rate you enter is held constant for every period of the schedule. For a broader retirement income plan that layers Social Security timing and required minimum distributions on top of a payout schedule like this one, see the retirement calculator, the social security calculator, and the RMD calculator.