The formula
How to calculate annuity value
An annuity is a fixed payment arriving at regular intervals. Its present value is what that whole stream is worth as a single sum today — the number behind pension transfer values, structured settlements and lease valuations.
Each payment is discounted back to today and the results added up. Later payments contribute less; beyond about thirty years at typical rates, additional payments barely move the total.
What to enter:
- Payment per year
- Discount rate (%)
- Years of payments (years)
The result updates on every keystroke. The URL updates too, which makes the filled-in version easy to bookmark or send to someone else.
Worked example
Take the figures the calculator starts with:
- Payment per year: 12,000
- Discount rate: 5 %
- Years of payments: 20 years
That gives:
- Present value: 149,546.52
- Total paid out over the term: 240,000
- Lost to discounting: 90,453.48
Reading the result
Compare the present value against the raw total. £12,000 a year for twenty years totals £240,000 but is worth roughly £150,000 today at 5% — and that gap is exactly what a lump-sum offer is exploiting or reflecting, depending on how it is priced.
Where this goes wrong. Mixing up ordinary annuities and annuities due. This calculator assumes payments at the end of each period; if they arrive at the start, as rent usually does, the value is higher by a factor of (1 + r).
Compare the lump sum offered against the present value here, using a discount rate matching what you could safely earn. But the arithmetic is only half the decision — an annuity also removes the risk of outliving your money, which a lump sum does not.
Not directly. To value payments that stay flat in cash terms, use a nominal discount rate. To value payments that rise with prices, use a real rate instead, and keep the whole calculation in today's money.
The answer it gives you is present value. With 12,000 payment per year, 5 % discount rate and 20 years years of payments, that comes to 149,546.52. Change any field and the figure moves with it.