The formula
How to calculate annuity payment
This is the drawdown question: how much can a pot pay out each year if it has to last a fixed number of years and the remainder keeps earning? The answer is the annuity payment, and it is the mortgage formula applied to savings rather than debt.
The payment is sized so the balance hits exactly zero in the final year. Because the unpaid remainder keeps earning, the sustainable payment is meaningfully higher than simply dividing the pot by the number of years.
Fill in the following:
- Lump sum
- Annual rate (%)
- Years of payments (years)
Results appear immediately — there is nothing to submit. Changing a field rewrites the link, so you can share the exact scenario you are looking at.
Where a figure is not immediately to hand — a precise interest rate, an exact balance — a reasonable estimate is a perfectly good starting point. Because every result updates instantly, refining a rough guess into the real figure once you have it takes a moment, and nothing about the calculation depends on getting it exactly right on the first attempt.
Why annuity payment matters
Most people who look up a annuity payment calculation already have a specific number in mind — a quote, an offer, a target — and want to check it rather than learn the theory behind it. This page is built for that: enter your own figures, see the result immediately, and change any field to see how the answer moves without redoing the arithmetic from scratch each time.
This tends to come up when comparing two concrete alternatives — two lenders, two savings products, two ways of structuring the same decision — rather than in the abstract. Run both scenarios through the same calculator with the same assumptions and the comparison becomes fair, because the only thing changing between the two results is the number you are actually trying to test.
The reason a page like this exists at all, rather than leaving the calculation to a spreadsheet or a textbook appendix, is that the formula behind annuity payment is fiddly enough to get wrong by hand but not complicated enough to need specialist software. That middle ground — real enough maths to matter, simple enough to check instantly — is exactly what a dedicated calculator is for, and it is why the same figure recalculated here should match a careful manual calculation almost exactly.
In practice, most people arrive at a page like this one having already tried a version of the calculation by hand or in a spreadsheet, and use the calculator here to confirm it rather than replace it. That is a reasonable way to use it — the two should agree to the last decimal place if the same inputs and the same formula are used, and if they do not, the formula shown above is the one to check your own working against first.
Worked example
Take the figures the calculator starts with:
- Lump sum: 250,000
- Annual rate: 5 %
- Years of payments: 25 years
That gives:
- Payment per year: 17,738.11
- Payment per month: 1,478.18
- Paid out in total: 443,452.86
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
Contrast this with a perpetual withdrawal rate. Running a pot to zero over 25 years supports around 7% a year at a 5% return, where a portfolio intended to last indefinitely supports closer to 4%. The difference is the price of not running out.
Where this goes wrong. Treating the result as inflation-proof. A payment fixed in cash terms loses roughly a third of its purchasing power over 25 years at 2.5% inflation, which is why index-linked annuities start so much lower.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
No. A commercial annuity is priced on life expectancy, the insurer's own investment return and its margin, and it pays until you die rather than for a fixed term. This is the arithmetic of a self-managed drawdown.
The pot runs out early. Sequence matters as much as average return: poor years at the start do far more damage than the same years at the end, because the withdrawals come out of a shrunken balance.
The headline figure is payment per year. With 250,000 lump sum, 5 % annual rate and 25 years years of payments, that comes to 17,738.11. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.