Turn a lump sum into a regular income, or value a series of payments.
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An annuity is a series of equal payments. With a lump sum and an interest rate, the payment that uses it all up over the term is PMT = PV × r ÷ (1 − (1 + r)^−n).
The same formula values a stream of payments today (present value) or what regular savings grow into (future value). A growing annuity raises payments each year, for example with inflation.
| Calculate | Payment from a lump sum |
| Lump sum or payment | 300000 |
| Interest rate a year | 5% |
| Years | 25 years |
| Payments | Monthly |
| Paid at | End of each period (ordinary) |
| Payment growth a year | 0% |
| Currency | $ Dollar |
| Payment each month | $1,753.77 |
| Total paid out | $526,131 |
| Interest earned | $226,131 |
| Periods | 300 months at 5% a year |
$1,753.77.
| Calculate | Present value of payments |
| Lump sum or payment | 1000 |
| Interest rate a year | 5% |
| Years | 20 years |
| Payments | Monthly |
| Paid at | End of each period (ordinary) |
| Payment growth a year | 0% |
| Currency | $ Dollar |
| Present value (lump sum needed) | $151,525.31 |
| Total payments | $240,000 |
| Discount | $88,475 |
| Periods | 240 months at 5% a year |
$151,525.31.
About $1,754 a month for 25 years at 5% if the capital is used up; insurer annuity rates depend on age and type.
Payments at the start of each period, like rent — worth slightly more than an ordinary annuity.
Lifetime annuities remove the risk of outliving your money; the trade-off is less flexibility and nothing left for heirs.
A level annuity loses buying power; an escalating annuity starts lower but rises each year.