How to Calculate the Income Payable Through an Annuity

All you need to calculate annuity payments are the annuity details and a calculator.

All you need to calculate annuity payments are the annuity details and a calculator.

Saving for retirement is important, and if you want to live comfortably, the time to start preparing is now. Annuities are insurance products that guarantee income after you retire. They are similar to regular retirement plans, except the government doesn't put a limit on the amount you can invest. The amount of your annuity payments depend on your initial investment, interest rate and the number of years the annuity pays. As long as you know these three main factors and can operate a calculator, finding out how much an annuity pays each year is a cinch.

Look at your annuity contract and take note of the annuity's interest rate, the amount of your initial investment and number of years the annuity pays out.

Change the interest rate to a decimal and add one. For example, with an annuity that pays 4 percent interest, .04 is 4 percent as a decimal. Add 1 to get 1.04.

Multiply the result to the X power, with X representing the number of years the annuity pays out. Using the previous example, if the annuity pays out for 15 years, you would multiply 1.04 to the 15th power to get 1.8009.

Divide 1 by the result, and then subtract that figure from 1. Using the previous example, if the result is 1.8009, divide 1 by the number to get 0.5552. Now subtract 0.5552 from 1 to get 0.4448.

Divide the interest rate as a decimal by the result. If the previous result was 0.4448 and the interest rate as a decimal was .04, the result is 0.0899.

Multiply your initial investment by the result. If you invested $100,000, multiply that number by 0.0899 to get 8,992.81. This means that your annuity will pay out $8,992.81 per year or $749.40 per month.

About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.

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