Annuity Calculator
Work out how long a pot of money lasts at a given withdrawal rate, or what income it can safely support for life.
How to use this calculator
- 1Pick the question you are actually asking — payment, duration or required savings.
- 2Use a conservative return. Money being drawn down cannot ride out a bad decade the way money being accumulated can.
- 3Check the withdrawal rate against the 4% guideline.
How the calculation works
Payment = P × r / (1 − (1 + r)⁻ⁿ)
Duration = −log(1 − P·r / PMT) / log(1 + r)- P
- Starting balance
- r
- Return per period
- n
- Number of periods
- PMT
- Withdrawal each period
This is the same annuity formula that prices a loan, run in reverse — a drawdown is a loan you make to yourself.
When the withdrawal is at or below the growth the balance earns, the pot never depletes and the duration is infinite. The calculator reports that rather than returning a nonsense number.
The duration formula is undefined in exactly that case, which is why it is checked before being applied.
Worked example
$500,000 drawn down monthly over 30 years at 5%
- 1.Monthly rate: 5% ÷ 12 = 0.4167%. Periods: 30 × 12 = 360.
- 2.Payment = 500,000 × 0.004167 ÷ (1 − 1.004167⁻³⁶⁰) = $2,684.11.
- 3.That is $32,209 a year — a 6.44% withdrawal rate, which is above the 4% guideline.
- 4.Over 30 years you withdraw $966,280, of which $466,280 comes from investment growth.
Result: $2,684.11 a month for 30 years
Two meanings of "annuity"
In finance, an annuity means simply a series of equal payments made at regular intervals — the mathematical object this calculator works with, whether the payments are a mortgage repayment, a savings contribution, or a retirement withdrawal. In everyday use, though, "an annuity" more often refers to a specific insurance product: a contract where an insurer accepts a sum of money and, in exchange, guarantees a stream of payments for a fixed period or for the rest of your life. This calculator models the underlying mathematics, which is the same in either case, without pricing an actual insurance contract or its fees and guarantees.
Types of annuity products
Insurance-sold annuities come in several forms, distinguished by when payments start and how the underlying money is invested.
- Immediate annuity — payments begin right away, typically purchased with a lump sum at or near retirement.
- Deferred annuity — the sum grows for a period before payments begin, similar in structure to the accumulation phase this calculator’s "required savings" mode models.
- Fixed annuity — pays a guaranteed, predictable amount, in exchange for generally lower growth potential.
- Variable annuity — payments depend on the performance of underlying investments, carrying more upside and more risk than a fixed contract.
- Single life versus joint life — a single-life annuity pays for one person’s lifetime only; a joint annuity continues for a surviving spouse or partner, usually at a reduced rate to fund the extra coverage.
The drawdown problem this calculator solves
Whether or not an insurance product is involved, anyone living off a fixed pot of savings faces the same underlying question: how much can be withdrawn regularly without running out too soon, or leaving unnecessarily large sums unspent. That is a straightforward calculation when the return is assumed constant — the same annuity formula that prices a loan, run in reverse — but the assumption of a constant return is also the calculation’s biggest limitation, which is why the notes above flag sequence risk explicitly.
Sequence-of-returns risk
Two portfolios can have identical average returns over thirty years and still end up wildly apart, depending purely on the order those returns arrive in. A portfolio that suffers a downturn in its first few years of withdrawals is drawing money out of an already-shrunken balance, leaving less capital left to benefit when returns eventually recover — while the same downturn arriving in year twenty-five does far less damage, because most of the withdrawals have already safely occurred. This asymmetry is why drawdown planning tends to favour more conservative assumptions than accumulation planning does, even when the long-run average return is expected to be the same.
Making a retirement pot last
A handful of practical adjustments reduce the risk of a drawdown plan failing, without requiring any ability to predict markets.
- 1Start with a conservative withdrawal rate — a lower initial rate leaves more room to absorb a poor early sequence of returns.
- 2Keep some growth assets in the mix — moving entirely to cash protects against short-term volatility but risks the balance being eroded by inflation over a multi-decade retirement.
- 3Hold a cash buffer — a reserve covering a year or two of withdrawals means investments do not need to be sold at a loss during a downturn just to fund spending.
- 4Flex spending in weak years — a plan that trims withdrawals slightly after a bad market year is measurably more resilient than one that withdraws a fixed amount regardless of performance.
- 5Delay other income sources if possible — postponing a state pension or similar guaranteed income, where the option exists, typically increases its eventual size and reduces how much the invested pot needs to cover in the meantime.
What this assumes, and where it stops
Assumptions
- Returns are constant. Real drawdown faces a variable sequence, which matters far more than the average.
- Withdrawals are made at the end of each period and never vary.
- No tax, fees or inflation adjustment to the withdrawal amount.
Limitations
- Sequence-of-returns risk is the dominant risk in drawdown and a constant-rate model cannot capture it. A poor first five years can exhaust a pot that succeeds on average.
- Withdrawals held flat in nominal terms lose purchasing power. Rising them with inflation shortens the duration substantially.
- Commercial annuity products involve insurer pricing, guarantees and fees that this does not model.
Common questions
What is the 4% rule?
A guideline from studies of historical US market data suggesting that withdrawing 4% of the initial balance in year one, then rising with inflation, had a high probability of lasting 30 years. It is a starting point rather than a guarantee — it assumes a specific asset mix, a specific market history, and no fees.
Why does the order of returns matter so much?
Because withdrawals compound the damage of early losses. Two portfolios with identical average returns can end decades apart if one suffers its bad years first — the withdrawals come out of an already-shrunken balance, leaving less to recover with. This is why drawdown planning uses conservative assumptions.
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
Related calculators
Tools people commonly use alongside the annuity calculator.