The formula
How to calculate annuity payment
This is the drawdown question: how much can a pot pay out each year if it has to last a fixed number of years and the remainder keeps earning? The answer is the annuity payment, and it is the mortgage formula applied to savings rather than debt.
The payment is sized so the balance hits exactly zero in the final year. Because the unpaid remainder keeps earning, the sustainable payment is meaningfully higher than simply dividing the pot by the number of years.
Fill in the following:
- Lump sum
- Annual rate (%)
- Years of payments (years)
Results appear immediately — there is nothing to submit. Changing a field rewrites the link, so you can share the exact scenario you are looking at.
Worked example
Take the figures the calculator starts with:
- Lump sum: 250,000
- Annual rate: 5 %
- Years of payments: 25 years
That gives:
- Payment per year: 17,738.11
- Payment per month: 1,478.18
- Paid out in total: 443,452.86
Reading the result
Contrast this with a perpetual withdrawal rate. Running a pot to zero over 25 years supports around 7% a year at a 5% return, where a portfolio intended to last indefinitely supports closer to 4%. The difference is the price of not running out.
Where this goes wrong. Treating the result as inflation-proof. A payment fixed in cash terms loses roughly a third of its purchasing power over 25 years at 2.5% inflation, which is why index-linked annuities start so much lower.
No. A commercial annuity is priced on life expectancy, the insurer's own investment return and its margin, and it pays until you die rather than for a fixed term. This is the arithmetic of a self-managed drawdown.
The pot runs out early. Sequence matters as much as average return: poor years at the start do far more damage than the same years at the end, because the withdrawals come out of a shrunken balance.
The headline figure is payment per year. With 250,000 lump sum, 5 % annual rate and 25 years years of payments, that comes to 17,738.11. Change any field and the figure moves with it.