How to Use the Annuity Calculator
The Annuity Calculator computes annuity payments, present value, and future value for both ordinary annuities (payments at period end) and annuities due (payments at period start). It's an essential tool for pension planning, structured settlements, and any scenario involving a series of equal payments over time.
Enter the payment amount, interest rate, and number of periods to calculate the present or future value. Alternatively, enter a lump sum and desired payment to find out how long it will last or what payment size it generates. The tool handles both saving (accumulation) and income (decumulation) phases.
A critical distinction is between ordinary annuities and annuities due. Ordinary annuities (like most loans and mortgages) pay at the end of each period. Annuities due (like rent or insurance) pay at the beginning. Annuities due are worth slightly more because each payment is received one period earlier.
📊 Worked Example
£500,000 pension pot, 4% drawdown rate, 20-year retirement:
- Annual payment: £36,679
- Monthly payment: £3,057
- Total received: £733,580
- PV of £2,000/month for 25 years at 5%: £340,461
Common Use Cases
- ✅ Calculating sustainable drawdown payments from a pension pot
- ✅ Pricing a structured settlement to understand its present value
- ✅ Working out the future value of regular pension contributions
- ✅ Comparing buying an annuity vs drawdown in retirement
- ✅ Valuing a rental income stream or lease agreement
- ✅ Calculating loan payments using the present value of an annuity formula
- ✅ Understanding the present value of any series of future cashflows
Frequently Asked Questions
What is an annuity?
An annuity is a series of equal payments made at regular intervals. In finance, this includes structured settlements, pension income streams, and loan repayments. In the insurance context, an annuity converts a lump sum into a guaranteed income for life or a fixed period.
What is the difference between present value and future value of an annuity?
Present value (PV) is what a series of future payments is worth today — useful for valuing income streams. Future value (FV) is what regular payments will accumulate to at a future date — useful for projecting pension savings. Both use compound interest at the specified rate.
Should I buy an annuity or take drawdown in retirement?
Annuities offer a guaranteed income for life regardless of how long you live — valuable if you have longevity in your family. Drawdown keeps your pot invested and growing but risks running out if markets fall or you live longer than expected. Many retirees combine both, annuitising enough to cover essential expenses.
What is a life annuity vs a fixed-term annuity?
A life annuity pays income for as long as you live, regardless of how many years that is. A fixed-term annuity pays for a specific number of years (e.g. 20 years) whether or not you're alive. Life annuities protect against longevity risk; fixed-term ones offer more flexibility.
How does interest rate affect annuity payments?
Higher interest rates produce higher annuity payments from the same lump sum (or require less capital to fund the same income). When rates are low, annuity providers can offer less income. This is why annuity rates fell significantly after 2008 and have improved since rates rose in 2022.