Immediate Annuity Calculator
Estimate the fixed monthly income from a lump-sum premium over a chosen term, and its annual payout rate.
Input Data
Results
At a glance:The Immediate Annuity calculator computes 'how much fixed monthly income a lump-sum premium yields over a chosen term' until principal and interest are exhausted — common in retirement to exchange savings for stable monthly cash flow. Ordinary-annuity (end-of-period) amortisation: monthly rate i = annual ÷ 12, total months n = years × 12; monthly payout a = premium ÷ [(1 − (1+i)^−n) ÷ i]; total payout = a × n; annual payout rate = (12a) ÷ premium × 100% (note this rate includes principal amortisation, not pure interest). Shorter terms give higher monthly payouts because principal plus interest must be paid out sooner.
Formula
Monthly rate i = annual ÷ 12; total months n = years × 12.
Monthly payout a = premium ÷ [(1 − (1+i)^−n) ÷ i].
Total payout = a × n; annual payout rate = (12a) ÷ premium × 100%.
$$a = \dfrac{P}{\dfrac{1 - (1 + i)^{-n}}{i}}, \quad i = \dfrac{r}{12},\; n = 12t$$$$\text{Annual payout rate} = \dfrac{12a}{P} \times 100\%$$How to Use
- Enter the one-off premium you plan to invest.
- Enter the annual rate during the payout period and the payout term in years.
- View the fixed monthly income, total payout and annual payout rate.
Premium HK$100,000, annual rate 5% — monthly payout by term
| Term | Monthly payout | Total payout | Annual payout rate |
|---|---|---|---|
| 10 years | HK$1,060.66 | HK$127,279 | 12.73% |
| 15 years | HK$790.79 | HK$142,342 | 9.49% |
| 20 years | HK$659.96 | HK$158,389 | 7.92% |
Shorter term → higher monthly payout (principal plus interest paid out sooner); longer term → lower monthly but higher total payout. The 'annual payout rate' far exceeds the pure interest rate because it includes principal amortisation; do not compare directly with time-deposit yields.
Case Studies
Case 1: A lump sum for ten years of monthly income
Retiree Mr Chan invests HK$100,000 at 5% annual, wanting fixed monthly income for 10 years (120 months).
Monthly rate i = 5% ÷ 12 ≈ 0.4167%, n = 120. Monthly payout a = 100,000 ÷ [(1 − 1.004167^−120) ÷ 0.004167] ≈ HK$1,060.66; total payout = 1,060.66 × 120 ≈ HK$127,279.
Interpretation: HK$100k invested returns about HK$127k over 10 years, ~HK$1,061 stable per month. The ~12.73% annual rate includes principal amortisation — each payout is part interest + part returned principal, not pure investment return, so it is not comparable to a 5% deposit.
Case 2: Trading off term length
If Mr Chan extends the term from 10 to 20 years (240 months), all else equal: monthly payout a ≈ HK$659.96, total payout ≈ HK$158,389.
Comparison: 10-year term ≈ HK$1,061/month (total ~127k); 20-year ≈ HK$660/month (total ~158k). Doubling the term cuts monthly income by about 40%, but because principal earns interest longer, total payout is higher.
Practical notes: (1) term length should match how long you need income — long term for steady long payout, short term for early cash flow; (2) this tool is a fixed-rate amortisation model for education; real insurance annuities also depend on pricing, fees, lifetime payout, death benefits and market rates — use the policy document; (3) lifetime annuities have no fixed term and pay for life, unlike this term model; (4) inflation erodes fixed payouts — consider products with escalating payouts. Pair with the annuity-payout, deferred-annuity and retirement-savings calculators.
FAQ
Why does the annual payout rate look so high?
Because each monthly payout includes both interest and principal amortisation. Annual payout rate = yearly payout ÷ premium, which counts your own principal as well, so it far exceeds the pure rate. Shorter terms give a higher ratio; it is not an investment return — do not compare directly with deposits or bond yields.
How does an immediate annuity differ from a deferred annuity?
An immediate annuity starts paying soon after the premium is invested (usually within a year); a deferred annuity first lets the principal accumulate and grow for a period before payouts begin. This tool computes the immediate type — income starts right away.
Why do results differ from an insurer's quote?
This tool is an educational fixed-rate amortisation estimate. Real annuity products are also affected by the insurer's pricing assumptions, administration fees, whether payouts are lifetime, death benefits and market rates, so they differ from this tool. Use the policy document for actual figures.
Who is an immediate annuity for, and is swapping a lump sum for monthly income worthwhile?
An immediate annuity exchanges a lump sum for income that starts immediately and is paid steadily — common in retirement. Whether it suits you depends on your needs and the trade-off between stability vs flexibility/return. It suits: (1) retirees worried savings will run out — especially lifetime annuities guarantee income for as long as you live, hedging longevity risk; (2) those unwilling/unable to manage investments themselves — the insurer runs it, no market worry; (3) those needing cash-flow discipline — fixed payouts prevent blowing a lump sum. It may not suit: (1) able self-investors seeking higher return and flexibility; (2) those in poor health with shorter life expectancy (may not get the principal back); (3) those needing large liquid reserves (annuities are usually hard to withdraw). Key points: the annual payout rate is NOT investment return (it returns your own principal); an annuity's value is certainty and longevity protection, not max return; worth depends on lifespan, pricing/fees, rate environment. Advice: treat it as part of retirement income (a floor), keep some liquid and growth assets; read terms carefully (term vs lifetime, death benefit, inflation escalation, fees); compare real quotes and consider a licensed adviser. Pair with retirement-savings and deferred-annuity calculators.
Why does payout erode principal, and what does inflation do to a fixed annuity?
Two key traits: (1) Payout includes principal amortisation. This tool uses an amortisation model — your premium plus its interest is spread evenly into each fixed payout until the balance hits zero at term end. So each payment is part interest + part returned principal; early on interest dominates, later principal return dominates, and at the last period principal is exhausted. That is why the 'annual payout rate' looks high (it counts returned principal, not pure return), and a term annuity leaves zero residual at end. If you want to keep principal and take only interest, that is a different arrangement (with much lower monthly income). (2) Inflation erodes fixed payouts. A fixed-payout annuity loses purchasing power yearly — HK$1,061 today buys much less in 10-20 years. For long or lifetime retirement annuities this matters; nominal income is unchanged but real living standard slowly drops. Mitigations: (1) some products offer escalating payouts (e.g. +2-3%/yr) at the cost of lower initial payout; (2) keep some growth assets that outpace inflation; (3) plan retirement income in real terms. Note: this tool is a fixed-rate, fixed-payout educational estimate, ignoring inflation and fees; real terms vary widely — use the policy document and consider inflation's effect on long-run purchasing power. Pair with the inflation and real-rate calculators.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.