Annuity Payment Calculator

This calculator answers a specific question: if you have a lump sum today and want to draw it down as a series of equal payments over a fixed number of years, while the remaining balance keeps earning interest, how large can each payment be? This is the math behind a pension payout, a structured settlement, or a "decumulation" phase of retirement income — it is not a calculator for building up an annuity through regular contributions. If you're trying to estimate how a balance grows from periodic deposits instead, you want a savings-growth or future-value calculator, not this one.

The Formula (Ordinary Annuity)

PMT = PV × r ÷ [1 − (1 + r)^−n]
where r = Annual Rate / 100 / Payments per Year
and n = Years × Payments per Year

This calculator assumes an ordinary annuity, meaning each payment is made at the end of its period, not the beginning. Ordinary annuities are the standard structure for pension disbursements, loan repayments, and most bonds. An "annuity due," where payments happen at the start of each period, produces a slightly smaller required payment for the same inputs since the money has less time to earn interest before being paid out.

A Worked Example

Suppose you have a $250,000 lump sum, it earns 5% annually, and you want it paid out monthly over 20 years. Here, r = 0.05/12 ≈ 0.004167 and n = 240 payments. Solving the formula gives a monthly payment of roughly $1,649.11, for a total payout of about $395,786 — nearly $146,000 more than the original $250,000, because the un-disbursed balance keeps earning 5% the entire time it's being drawn down.

Why Total Paid Out Exceeds the Lump Sum

It's tempting to assume you're just getting your own $250,000 back in installments, but that's only true at a 0% rate. At any positive rate, the balance that hasn't been paid out yet continues compounding, so the annuity can sustain payments larger than a simple lump-sum-divided-by-payments split would allow — and the total paid over the full term ends up above the starting balance. The higher the rate or the longer the term, the bigger that gap grows.

Frequently Asked Questions

Q: What happens if I enter a 0% interest rate?
A: The calculator falls back to simply dividing the lump sum evenly across all payments (PV ÷ n), since the annuity formula above is undefined at exactly 0%.

Q: Is this the same as a mortgage payment calculation?
A: Mathematically, yes — a mortgage is a bank paying out a lump sum to you (the loan) and you repaying it as an ordinary annuity. This calculator applies the identical formula from the opposite direction: you're the one holding the lump sum and receiving payments.

Q: Does this account for taxes or fees on the payments?
A: No. This is a pure time-value-of-money calculation. Real pension or settlement payouts may be subject to taxes, administrative fees, or survivor-benefit adjustments that this tool doesn't model.

Q: Can the balance run out before the term ends?
A: Not by this formula's design — it's built so the payment amount exactly exhausts the present value (principal plus all accrued interest) at the end of the specified term, no earlier and no later.