Annuity Calculator 2025
Calculate guaranteed income from annuities and understand how different annuity types work for retirement planning. Compare immediate vs. deferred annuities and their benefits.
Calculator
Amount to be annuitized
Current annuity rates: 4-6%
Typical: 20-30 years for retirement
Results
Annuity Type Comparison
| Type | Payments Start | Tax Benefit | Flexibility |
|---|---|---|---|
| Immediate | Now | No | Low |
| Deferred | 3-10 years | Yes (growth phase) | Medium |
| Fixed Annuity | Varies | Tax-deferred growth | Low |
| Variable Annuity | Varies | Tax-deferred growth | Medium |
Annuities Explained: Guaranteed Income for Retirement Security
An annuity is a financial contract between you and an insurance company where you provide a lump sum of money in exchange for guaranteed periodic payments. For many retirees, annuities represent valuable insurance against market crashes and longevity risk—the risk of outliving your money. However, annuities come with complex tradeoffs between guarantee, flexibility, and cost that require careful analysis before purchasing.
What Is an Annuity?
An annuity converts a lump sum into a stream of predictable income. You give an insurance company a large sum (say $500,000), and they commit to paying you a guaranteed monthly amount for a specified period—often your lifetime. This transfers longevity risk from you to the insurance company, providing peace of mind that your income can't run out due to market crashes or outliving your savings.
Basic Trade
You give up: Direct access to your principal and market upside You gain: Guaranteed income you can't outlive
When to Consider Annuities
- ✓Income certainty: You want guaranteed income regardless of market performance
- ✓Longevity risk: Family history suggests you'll live to 95+
- ✓Portfolio anxiety: Market volatility causes you significant stress
- ✓Base income: You want guaranteed base, plus flexible investments elsewhere
Immediate Annuities: Pros and Cons
Advantages
- ✓ Simple and straightforward
- ✓ No market risk once annuitized
- ✓ Lifetime income options available
- ✓ Low fees (typically 1-3%)
- ✓ Can't run out of money
Disadvantages
- ✗ Lose principal access and flexibility
- ✗ No growth potential
- ✗ Inflation erodes purchasing power
- ✗ Complex joint survivor options
- ✗ Better as portion of portfolio
Deferred Annuities: Growth and Flexibility
With a deferred annuity, your money grows tax-free for several years before you begin taking payments. This allows you to take advantage of compound growth while still ensuring guaranteed income later. They're often used by people in their 50s who want to guarantee income at 65-70.
Accumulation Phase (Growth)
Your $500,000 grows at 5-6% tax-free for 10 years, becoming ~$814,000
Distribution Phase (Income)
At 65, your $814,000 converts to guaranteed monthly payments for life
Fixed vs. Variable Annuities
Fixed Annuities
- • Guaranteed fixed rate (typically 4-6%)
- • Simplest, safest option
- • No market risk whatsoever
- • Best for conservative investors
Variable Annuities
- • Returns tied to underlying investments
- • Higher growth potential
- • Market risk during accumulation
- • Higher fees (1-2% annually)
Understanding Annuity Costs
Annuity pricing reflects the insurance company's costs, profits, and the annuitant's life expectancy. Current rates (2024-2025) are attractive due to higher interest rates, but they vary significantly by provider.
Annuity vs. Other Retirement Income Strategies
Annuity Strategy
Trade flexibility for guaranteed income. Best for risk-averse retirees who want certainty.
4% Withdrawal Rule
More flexible, growth potential. 85-90% success rate but requires discipline.
Hybrid Approach
Annuity for 50% of needs (guaranteed base), flexible investments for remainder. Best of both.
Important Annuity Considerations
- ⚠️Irrevocable decision: You can't easily reverse annuitization
- ⚠️Inflation erosion: Fixed income loses purchasing power over 30+ years
- ⚠️Company risk: Depend on insurer's financial stability (check ratings)
- ⚠️Joint options: Spouse protection significantly reduces payments
- ⚠️Tax complexity: Portion of payments are tax-free, portion taxable
Shopping for Annuities
- ✓Get multiple quotes: Rates vary 20-30% between insurers
- ✓Check ratings: Use A.M. Best or Moody's for insurer stability
- ✓Consider laddering: Multiple smaller annuities instead of one large
- ✓Explore inflation riders: Extra cost but protects purchasing power
- ✓Time the market: Higher interest rates = better annuity rates
Key Takeaway: Annuities as Insurance, Not Investment
Think of annuities as longevity insurance, not investments. They protect against the risk of market crashes or living longer than expected. The decision to annuitize should be based on your risk tolerance, life expectancy, and desire for guaranteed income—not expected returns. For most retirees, a hybrid approach works best: annuitize enough to cover basic living expenses (50-70%), then invest the remainder aggressively for growth and flexibility. This provides peace of mind while maintaining growth potential and inflation protection.