Annuity Payout Calculator
Work out the regular income a lump sum produces when annuitised at a given return rate over a fixed term — the textbook PMT formula used by Excel.
Monthly payout
£2,922.95
- Annual payout
- £35,075.40
- Total paid out over term
- £876,885.06
- Interest earned during payout
- £376,885.06
- Number of payments
- 300
Ordinary-annuity payout from a present-value lump sum: PMT = PV · r / (1 − (1+r)^-n), where r is the period rate (annual rate / periods per year) and n is the total number of periods. Matches Excel =PMT(rate, nper, -PV) with type=0.
How to use this calculator
Enter the starting balance (the lump sum you want to turn into income), the annual return rate you expect the balance to keep earning during the payout phase, and the number of years you want the payments to last. Choose how often you want the income paid — monthly, quarterly, or annually — and the calculator returns the regular payout plus the total income and interest earned across the full term.
How the calculation works
The calculator applies the standard ordinary-annuity payment formula: PMT = PV · r / (1 − (1+r)^-n), where PV is the starting balance, r is the period interest rate (annual rate divided by periods per year), and n is the total number of payment periods. The result is the constant periodic payment that exactly exhausts the lump sum over the term while the remaining balance keeps earning the entered rate. The formula matches Excel's =PMT(rate, nper, -PV) with type=0 and is the canonical TVM result from any finance textbook.
Worked example
A $500,000 balance, 5% annual return, 25-year payout, monthly payments. Period rate r = 0.05 / 12 ≈ 0.004167, periods n = 300. PMT = 500,000 · 0.004167 / (1 − 1.004167^-300) ≈ $2,922.95 per month. Over 25 years that is $876,886 of total income — the original $500,000 plus $376,886 of interest earned on the declining balance during the payout phase.
Frequently asked questions
What does this calculator actually compute?
It computes the level periodic payment that exactly amortises a lump sum to zero over a fixed term, assuming the remaining balance keeps earning a constant rate. That is the same maths used to price a fixed-term annuity, plan a retirement withdrawal schedule, or compute a fully amortising loan payment in reverse. The result is pure time-value-of-money — it does not include taxes, fees, mortality assumptions, or any insurance-product-specific loadings.
How is this different from a lifetime annuity quote?
A real lifetime annuity from an insurer pools mortality risk: the payout reflects the insurer's estimate of how long you (and any joint life) will live, plus their profit margin and expense load. This calculator does fixed-term maths — it tells you what a balance can pay out across a given number of years at a given rate, with nothing left at the end. To approximate a lifetime annuity, use a term roughly equal to your remaining life expectancy at retirement, but for an actual quote always get a personalised illustration from a regulated provider.
Is the return rate the rate on the whole balance or only the unpaid portion?
It applies to the remaining balance after each payment, which steadily declines. Early in the term, when the balance is large, most of each payment is interest. Late in the term, when the balance is small, most of each payment is principal. The total interest figure in the breakdown is the sum of all that interest across the full schedule.
What about taxes and inflation?
The result is nominal — payments in today's dollars (or pounds, euros, etc.) with no inflation adjustment. To estimate real purchasing power, subtract your expected inflation rate from the rate you enter (a 6% nominal return with 3% inflation is roughly 3% real). For tax, the calculator assumes the balance grows tax-deferred or tax-free; in a taxable account, deduct your marginal rate from the interest portion of each payment.
Does this use an ordinary annuity or annuity due?
Ordinary annuity — payments at the end of each period, matching Excel PMT with type=0 and the standard convention in finance textbooks. To convert to an annuity due (payments at the start of each period), divide the result by (1 + r), where r is the period rate. The annuity-due payout is slightly smaller for the same balance because each payment is received one period earlier and therefore earns less interest.
Can the payout last forever?
Not from a fixed balance at a finite return rate — eventually the balance hits zero. A perpetual income stream requires that you only spend the interest, never the principal. In TVM terms, the perpetuity formula is PMT = PV · r, with no n. For a $500,000 balance at 5%, that is $25,000 a year forever, which is much less than the $35,075 a year the same balance pays out over a 25-year term (where you spend both interest and principal).