Annuity Calculator — Lifetime Income, Lump Sum vs. Stream Comparison

Model your accumulation and annuity payout phase. Compare against the 4% safe withdrawal rule.

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Accumulation years

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Payout years (0 = lifetime)

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Accumulation rate

Payout phase rate

Marginal tax rate

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How to use

1 Choose mode: lump-sum vs. annuity comparison, or annuity payout from a premium.
2 For lump-sum comparison: enter the lump-sum offer, the monthly annuity offer, expected investment return on lump sum (use 5-7% conservative), and your projected lifespan.
3 For annuity payout: enter the premium amount, your age (older = higher payout), and annuity type (immediate, deferred fixed, deferred variable).
4 Click Calculate to see lifetime breakeven analysis or projected monthly income.
5 For pension elections, factor in spousal survivor benefit choice (typically 50-100% continuation), inflation adjustment (rare in private pensions), and the strength of the pension's funding (PBGC insurance covers private pensions up to limits if employer fails).

Annuity Types in the US Market

Type	Description	Typical use
Immediate (SPIA)	Pay premium, payments start within 12 months	Retiree wanting guaranteed lifetime income
Deferred fixed	Premium grows tax-deferred at fixed rate	Conservative tax-deferred saving (alternative to CDs)
Deferred variable	Premium invested in subaccounts; payout varies	Tax deferral + market exposure (high fees)
Fixed indexed	Returns linked to S&P 500 with cap and floor	Modest growth with downside protection
QLAC	Deferred income annuity using IRA dollars	Tax-advantaged longevity insurance after 80

Pension Lump Sum vs. Lifetime Annuity

Most private pensions offer both options at retirement. Lump sum: take the cash, invest it, withdraw 4% annually (Trinity Study safe withdrawal rate). Annuity: take guaranteed lifetime monthly payments. The math: if your monthly annuity payment is more than 5% of the lump sum (annualized 60%/year), the annuity is usually better; if less than 4%, the lump sum often wins.

Annuity Pros and Cons

Pros	Cons
Guaranteed lifetime income (longevity insurance)	Lower expected total returns vs. invested portfolio
Mental ease — no portfolio management	Often no inflation adjustment; purchasing power erodes
Survivor benefit options for spouse	Surrender charges and high fees on variable annuities
State guarantee fund protection (varies by state)	Insurer credit risk (rare but real — Executive Life 1991)

PBGC and Pension Insurance

The Pension Benefit Guaranty Corporation (PBGC) insures private defined-benefit pensions. If your employer's pension plan fails, PBGC takes over and pays benefits up to a maximum (varies by age — about $7,000/month at age 65 in 2026). Public employee pensions and government plans are not PBGC-insured. Check your plan's funded status annually if relying on it for retirement.

When NOT to Buy an Annuity

Skip annuities if: (1) you have a generous Social Security benefit covering essential expenses, (2) you have ample portfolio for the 4% rule, (3) you have a short life-expectancy outlook (annuities pay best for those who live a long time), or (4) you need flexibility/liquidity. Variable annuities with high fees (typically 2-3.5% all-in) are particularly disadvantaged vs. low-cost index funds in a Roth IRA.

FAQ

Q Should I take the pension lump sum or lifetime annuity?

Quick rule: if monthly annuity is over 5% of lump sum (annualized 60%/year), annuity usually wins. Below 4%, lump sum often wins. Factor in spousal survivor benefit, your other guaranteed income (Social Security), and your investment discipline. Most fee-only fiduciary advisors recommend running both scenarios professionally.

Q How much will a $500,000 annuity pay per month?

For an immediate annuity at age 65: roughly $3,200/month for life (about 7.6% annualized payout — higher than 4% withdrawal rate because it includes principal). At age 70: ~$3,650/month. At age 75: ~$4,200/month. Older buyers get higher rates because expected lifespan is shorter. Use AnnuityRateWatch.com for current quotes.

Q Are annuities a good idea?

For some retirees, yes — particularly those without strong Social Security benefits, no defined-benefit pension, and worried about outliving savings. The book "How Much Can I Spend in Retirement" (Pfau) recommends partial annuitization (20-30% of portfolio) to cover essential expenses, with the rest invested for growth.

Q What is the difference between fixed and variable annuities?

Fixed: guaranteed interest rate (typically 3-5% in 2026). Low risk, low growth. Variable: invested in stock and bond subaccounts, returns vary. High potential growth but high fees (typically 2-3.5% annually). Most fee-only advisors recommend fixed over variable; if you want market exposure, low-cost index funds in a Roth IRA usually beat variable annuities net of fees.

Q Are annuity payments taxable?

Yes. Annuity payments from after-tax money are partially taxable (only the earnings portion is taxed; principal returns are tax-free under the exclusion ratio). Annuities funded with pre-tax money (qualified annuities, IRA-funded) are fully taxable as ordinary income. Variable annuities require a Form 5498 each year.

Q What happens to my annuity if the insurance company fails?

State guarantee associations cover annuity benefits up to limits (typically $250,000-$500,000 per insurer per state). Choose insurers with A.M. Best A+ ratings (Lincoln, MassMutual, Northwestern Mutual, etc.) to minimize default risk. Rare but real — Executive Life 1991 left some annuitants with reduced benefits.

Q Can I cancel an annuity?

During the "free look" period (10-30 days, varies by state), yes — full refund. After that, surrender charges apply for typically 5-10 years, sometimes starting at 10% and declining yearly. Surrender after the period ends typically free. Variable annuities also have ongoing fees that make early surrender expensive.

Q Is the 4% rule better than buying an annuity?

Mathematically, the 4% safe withdrawal rate from a 60/40 stock/bond portfolio has historically supported 30+ years of retirement income for nearly all historical periods (Bengen 1994, Trinity Study). It produces higher total returns than annuities but requires market discipline. Hybrid: annuitize part of your portfolio for floor income, invest the rest for growth.