Immediate Annuity Calculator
Calculate monthly payments from an immediate annuity purchase. Enter your lump sum amount and see how much guaranteed monthly income you can receive for life.
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Understanding Immediate Annuities
An immediate annuity is a contract purchased with a lump sum that provides guaranteed income payments starting immediately or within one year. Unlike deferred annuities, immediate annuities begin paying out right away, making them suitable for retirees needing current income.
How Immediate Annuities Work
You purchase an immediate annuity with a lump sum payment, and in return, the insurance company guarantees to pay you a fixed amount regularly for life or a specified period. The payment amount depends on your age, gender, payout option, and prevailing interest rates.
Monthly Payment = Lump Sum ÷ Present Value Factor
The present value factor accounts for life expectancy, interest rates, and payout options
Payout Options
| Option | Description | Payment Amount | Risk Level |
|---|---|---|---|
| Single Life | Payments until death | Highest monthly amount | Longevity risk |
| Joint & Survivor | Payments continue to surviving spouse | Reduced payments | Lower risk |
| Period Certain | Guaranteed payments for fixed period | Moderate payments | Low risk |
| Life with Period Certain | Life payments with minimum guarantee | Balanced payments | Moderate risk |
Factors Affecting Payment Amounts
- Age: Older purchasers receive higher payments due to shorter life expectancy
- Gender: Women typically receive lower payments than men
- Interest Rates: Higher rates increase payment amounts
- Payout Options: Single life provides highest payments
- Guarantees: Additional guarantees reduce payment amounts
- Health: Impaired health may qualify for higher payments
Cost of Living Adjustments (COLA)
COLA increases payments annually to combat inflation, but reduces initial payment amounts.
- Simple COLA: Fixed percentage increase (e.g., 2% annually)
- Capped COLA: Increases up to a maximum percentage
- Compound COLA: Based on previous year's payment
- No COLA: Fixed payments lose purchasing power
Tax Considerations
- Exclusion Ratio: Portion of payment that is tax-free return of principal
- Taxable Portion: Earnings taxed as ordinary income
- 1035 Exchange: Tax-free transfer from existing annuity
- State Taxes: Vary by state and annuity type
Advantages of Immediate Annuities
- Guaranteed Income: Provides lifetime income security
- Immediate Payments: Starts paying right away
- Longevity Protection: Payments continue regardless of lifespan
- Simple Management: No investment decisions required
- Inflation Protection: Optional COLA available
Potential Drawbacks
- Illiquidity: Funds generally cannot be accessed once annuitized
- Inflation Risk: Fixed payments lose purchasing power without COLA
- Death Benefit: May forfeit remaining value if dying early
- Fees and Commissions: Can be expensive to purchase
- Interest Rate Risk: Locked in at purchase time
When to Consider an Immediate Annuity
- Need Guaranteed Income: Want predictable monthly payments
- Worried About Longevity: Concerned about outliving savings
- Conservative Investor: Prefer safety over growth potential
- Retiring Soon: Need income to start immediately
- Simplify Finances: Want to eliminate investment management
Important: Immediate annuities are irrevocable contracts that provide guaranteed income but limit access to your principal. Consider your overall financial situation, other income sources, and liquidity needs before purchasing. Shop around and compare rates from multiple insurance companies.