Annuity Calculator
Planning regular payments or evaluating an annuity purchase? This calculator shows what a series of equal payments will be worth, accounting for compound interest over time.
How Annuities Build Value
An annuity is just repeated investing. Each payment earns interest from the moment you make it until the end of the period. Earlier payments earn more because they compound longer. The last payment earns nothing because it arrives at the finish line.
Take $1,000 monthly for 30 years at 7% annual return. Your first payment compounds for the full 30 years, growing to about $7,612. Your 180th payment (halfway through) compounds for 15 years, reaching about $2,759. Your final payment stays $1,000 because it has no time to grow.
Sum all 360 payments plus their individual growth and you get around $1.22 million. You contributed $360,000; compound interest added $860,000. This is the annuity future value—what regular payments accumulate to when interest compounds between deposits.
Ordinary Annuity vs Annuity Due
The timing of payments matters more than most people realize. An ordinary annuity pays at period end. Your January payment on an ordinary annuity earns interest starting in February. An annuity due pays at period start, so January's payment earns interest immediately.
This one-period shift changes the future value. If payments happen at the beginning, each one compounds for one extra period. For a 30-year monthly annuity at 7%, the difference is about 5.8% more wealth with annuity due—tens of thousands of dollars on a typical retirement account.
Real-world examples: 401(k) contributions are ordinary annuities (deducted from paychecks at period end). Rent is annuity due (paid at month start). Mortgages are ordinary annuities (payment due at month end for the previous month's interest). Knowing which type you have is essential for accurate calculations.
Annuity Products and Present Value
Insurance companies sell annuity contracts: you give them a lump sum, they promise payments for life or a fixed period. Evaluating these requires present value math. Take a $250,000 annuity offering $1,500 monthly for 20 years. That's $360,000 nominal. Sounds like a 44% gain.
But discount those payments at 5% (a reasonable rate for low-risk income) and the present value is only about $226,000. You're paying $250,000 for something worth $226,000—a bad deal. The insurance company pockets the difference.
The only way an annuity makes sense is if you value the longevity insurance (payments continue even if you live to 110) or you're terrible at managing money and need forced discipline. For most people, keeping the $250,000 invested and making systematic withdrawals generates more income and preserves the principal for heirs. Annuities are profitable for insurers precisely because they're expensive for buyers.
Frequently Asked Questions
What is an annuity?
An annuity is a series of equal payments made at regular intervals. Examples include monthly mortgage payments, quarterly dividends, annual pension checks, or regular retirement account contributions.
What's the difference between ordinary annuity and annuity due?
Ordinary annuity payments occur at the end of each period. Annuity due payments occur at the beginning. Rent is annuity due (you pay at month start). Mortgage is ordinary annuity (you pay at month end).
How do I calculate annuity future value?
FV = PMT × [(1 + r)^n - 1] / r, where PMT is payment, r is rate per period, and n is number of periods. This assumes ordinary annuity; multiply by (1 + r) for annuity due.
Can I use this for retirement planning?
Yes. Enter your planned monthly contribution, expected return rate, and years until retirement. The future value shows your projected nest egg at retirement.
What about annuity products from insurance companies?
Those are contracts where you give a lump sum and receive payments for life or a set period. This calculator can evaluate them by computing the present value of the payment stream and comparing to the purchase price.