- Immediate annuity
- An insurance contract bought with a single lump sum that starts paying income right away, typically within a month to a year. Also called a single premium immediate annuity (SPIA). This calculator models a fixed-period version, which pays out the premium plus interest over the years you choose and then stops.
- Lump-sum premium
- The single up-front amount you pay the insurer to buy the annuity. Once paid, it generally cannot be withdrawn or changed. In a fixed-period payout, the premium is fully paid back to you over the payout period, along with the interest credited on the declining balance.
- Payout period
- The number of years the annuity pays income. A longer period spreads the same premium over more payments, so each monthly payment is smaller, while total interest earned is larger. In a fixed-period (period-certain) contract, payments stop at the end of the period even if you are still living.
- Annual rate
- The yearly interest rate the insurer credits on the remaining balance while it pays you. This calculator divides it by 12 and applies it monthly, like a loan in reverse. Real annuity quotes build in the insurer’s pricing, costs and, for lifetime options, mortality assumptions, so actual payments can differ.
- Monthly income
- The level payment the annuity makes each month, calculated so the premium and credited interest are fully paid out by the end of the period. For example, $100,000 at 5% over 20 years pays about $660 a month. Payments are fixed and do not rise with inflation unless a rider is purchased.
- Life-contingent annuity
- An annuity that pays for as long as you (or you and a spouse) live, rather than for a set number of years. It protects against outliving your money, but payments usually end at death unless a guarantee period or refund feature is added. This calculator does not model life-contingent payouts.
- Total payout
- The sum of every payment over the payout period — the monthly income times the number of months. It equals your premium plus the total interest earned. It is a nominal total; money received in later years buys less if prices rise over the period.
- Interest earned
- Total payout minus the premium: what the insurer credits on top of returning your own money. For taxes, each payment from a nonqualified annuity is generally split between a tax-free return of premium and taxable earnings, using an exclusion ratio. Annuities bought with pre-tax retirement money are taxed differently.