An annuity is a financial product sold by insurance companies that provides a stream of regular payments to an individual for a set period or for the rest of their life. This calculator helps estimate the annual payout you might receive from a fixed annuity based on your initial investment, the annual interest rate, and the duration of the payout period.
How the Calculation Works
The formula used to calculate the fixed annual payout (Annuity Payment, AP) of an annuity is derived from the present value of an ordinary annuity formula. We rearrange it to solve for the payment amount:
Where:
PV is the Present Value (the Initial Investment).
r is the periodic interest rate (the Annual Interest Rate divided by the number of periods per year; for annual payouts, it's just the annual rate).
n is the total number of periods (the Payout Duration in Years multiplied by the number of periods per year; for annual payouts, it's just the duration in years).
The formula for the annual payout (AP) is:
AP = PV * [ r * (1 + r)^n ] / [ (1 + r)^n - 1 ]
This formula calculates how much you can receive each year while ensuring that the remaining principal, along with earned interest, can sustain the payments for the entire duration.
Example Calculation:
Let's say you have an initial investment of $100,000, expect an annual interest rate of 5% (0.05), and want to receive payouts over 20 years.
Therefore, the estimated annual payout would be approximately $8,024.
Important Considerations:
This calculator provides an estimate for a fixed annuity with annual payouts. Other types of annuities (e.g., variable, inflation-adjusted, or those with different payout frequencies) will have different calculations.
The interest rate used is a crucial factor. Higher rates lead to higher payouts, but guaranteed rates are often lower than market averages.
Fees and charges from the insurance provider are not included and will reduce the actual payout.
Taxes on annuity earnings are typically deferred until withdrawal but may apply. Consult a tax professional.
This is a simplified model. Real-world annuity contracts can have complex terms and conditions.
function calculateAnnuity() {
var principal = parseFloat(document.getElementById("principal").value);
var annualRate = parseFloat(document.getElementById("annualRate").value) / 100; // Convert percentage to decimal
var durationYears = parseFloat(document.getElementById("durationYears").value);
var resultDisplay = document.getElementById("result").querySelector("span");
// Clear previous results and styling
resultDisplay.textContent = "–";
resultDisplay.style.color = "#28a745"; // Reset to success green
// Input validation
if (isNaN(principal) || principal <= 0) {
resultDisplay.textContent = "Invalid Investment";
resultDisplay.style.color = "red";
return;
}
if (isNaN(annualRate) || annualRate < 0) {
resultDisplay.textContent = "Invalid Rate";
resultDisplay.style.color = "red";
return;
}
if (isNaN(durationYears) || durationYears <= 0) {
resultDisplay.textContent = "Invalid Duration";
resultDisplay.style.color = "red";
return;
}
// Annuity Payout calculation
var n = durationYears; // Number of periods (assuming annual payouts)
var r = annualRate; // Periodic interest rate (assuming annual rate)
var pv = principal; // Present Value
var annualPayout;
// Handle edge case where rate is 0 to avoid division by zero or log(0) issues if formula was different
if (r === 0) {
annualPayout = pv / n;
} else {
var numerator = r * Math.pow(1 + r, n);
var denominator = Math.pow(1 + r, n) – 1;
annualPayout = pv * (numerator / denominator);
}
// Check if calculation resulted in a valid number
if (isNaN(annualPayout) || !isFinite(annualPayout)) {
resultDisplay.textContent = "Calculation Error";
resultDisplay.style.color = "red";
} else {
resultDisplay.textContent = "$" + annualPayout.toFixed(2);
resultDisplay.style.color = "#28a745"; // Success green
}
}