What an Annuity Actually Is
An annuity is a contract with an insurance company: you hand over money — either as a lump sum, in regular deposits, or both — and in exchange the insurer promises to grow it and, eventually, pay it back out on agreed terms. That second half, the payout, can look very different from one contract to the next: a lump sum, a fixed monthly check for a set number of years, or even a check that keeps arriving for the rest of your life no matter how long you live. This page focuses specifically on the first half of that story — the accumulation phase, where your starting balance and ongoing deposits grow at some rate of return before any payout begins. If you're further along and want to project the payout side instead, our Annuity Payout Calculator handles that half.
How This Calculator Works
Enter a starting principal, an annual addition, a monthly addition, a growth rate, and a number of years. Both the annual and monthly addition apply in the same run — you don't have to choose one or the other — which matches how many real annuity contracts work: an initial premium, topped up by smaller recurring deposits and the occasional larger one. The two tabs above the form control timing: an ordinary annuity credits that period's growth first and adds the deposit afterward, while an annuity due adds the deposit first so it earns one extra period of growth. Every result — the big number, the three summary rows, the donut chart, and the full schedule below — recalculates instantly as you type, and the schedule can be viewed either as a year-by-year table or expanded to every individual month.
The Math Behind Annuity Growth
This calculator compounds monthly. Each month, the monthly rate is applied to the current balance, and that month's deposit (the monthly addition, plus the annual addition on the first month of each year) is added either before or after that growth, depending on the timing tab selected. Written month by month:
Ordinary annuity (end of period): Balance = (Balance + Interest) + This Month's Deposit
Annuity due (beginning of period): Balance = (Balance + This Month's Deposit) + Interest
Running that step forward one month at a time, for every month in the timeline, is exactly how the schedule below is built — there's no separate shortcut formula hiding behind the scenes; the big number and every row in the table come from the same repeated calculation. The starting principal begins earning growth from month one regardless of which tab is selected, since it's already sitting in the account before any deposit schedule begins — the timing choice only affects when each new deposit starts earning growth of its own.
Breaking Down Each Input
Starting Principal is whatever lump sum you're depositing on day one — enter $0 here if you're starting from scratch with only ongoing deposits. Annual Addition is a single larger deposit made once per year (a bonus, a tax refund, an annual contribution), applied at the very start of each 12-month block in the schedule. Monthly Addition is a smaller recurring deposit made every single month — set it to $0 if you're only planning a single annual top-up, or vice versa. Annual Growth Rate is the nominal yearly rate this calculator compounds monthly; for a fixed annuity, use the exact rate stated in the contract, and for a variable or indexed product, treat it as an assumption rather than a promise. After ___ years sets how long the accumulation phase runs before you'd move into a payout phase (modeled separately by our Annuity Payout Calculator). A common input mistake is entering an annual rate that was actually already quoted as a monthly figure — double-check which one you were given before typing it in.
Fixed vs. Variable vs. Indexed Annuities
Most annuities sold in the U.S. fall into one of three buckets, and the difference between them comes down to where the growth rate actually comes from.
Fixed annuities pay a rate the insurer guarantees for a set period, similar in spirit to a CD but usually with a longer time horizon and different tax treatment — growth is predictable, but a fixed rate agreed to today won't rise if market rates climb later, and most fixed contracts don't include a cost-of-living adjustment, so their real purchasing power can quietly erode over a long enough stretch.
Variable annuities put your money into investment sub-accounts, conceptually similar to mutual funds, so the return moves with the market — more upside is possible, but so is a balance that's genuinely lower than what was deposited, and variable contracts tend to carry the highest fees of the three types.
Indexed annuities (sometimes called equity-indexed annuities) sit in between: your return is linked to an index like the S&P 500, but almost always with a cap limiting how much of the index's gain you actually receive, paired with a guaranteed minimum so you're protected from the index's worst years. That combination of a lower ceiling and a protected floor is the entire trade-off of this category.
Immediate vs. Deferred Annuities
Separately from the fixed/variable/indexed split, every annuity is also either immediate or deferred, and that's really a question of timing rather than growth style. An immediate annuity starts paying out almost right away — typically within a year of the initial premium — which means it skips the accumulation phase this calculator projects almost entirely; it's built for someone who already has a lump sum and wants it converted into income now, most often someone at or near retirement. A deferred annuity is the type this whole calculator is built around: money goes in over time (or as a lump sum left alone to grow), and the payout doesn't start until a later date the owner chooses, often years or decades out. The appeal of deferring is the tax treatment — growth inside a deferred annuity generally isn't taxed until it's withdrawn — combined with simply having more time for deposits to compound before the payout phase begins.
What This Calculator Doesn't Cover
Three things this projection deliberately leaves out, on purpose, because they depend on a specific contract this calculator has no way of knowing: fees (mortality and expense charges, administrative fees, and optional rider charges are all common on real annuity contracts and are not subtracted here); surrender charges (most annuities penalize withdrawals beyond a certain amount during roughly the first 5 to 9 years of ownership, and this calculator assumes the full balance stays untouched for the entire timeline); and taxes (deferred growth is usually untaxed until withdrawal, but the actual amount owed then depends on your personal tax situation at the time). None of these make the growth math shown here wrong — they're simply layered on top of it by the specific contract, which is exactly why comparing two annuity quotes side by side requires reading the fine print, not just the headline rate.
Should You Buy an Annuity?
Annuities tend to make the most sense for someone who values predictability over maximum growth — particularly someone approaching or already in retirement who wants a guaranteed income stream they genuinely cannot outlive, regardless of how long that turns out to be. They can also work well as a supplement once tax-advantaged accounts like a 401(k) or IRA are already maxed out for the year, since an annuity has no contribution limit of its own. On the other side, annuities are a poor fit for money you might need access to on short notice, since surrender charges and IRS early-withdrawal penalties both work against pulling funds out ahead of schedule; and because commissions and ongoing fees on some annuity products run notably higher than a typical index fund, the same dollars invested elsewhere could plausibly grow faster, just without the guarantee attached. There's no universal right answer here — it depends on how much you value the guarantee itself, not just the projected number.
Rolling a 401(k) or IRA Into an Annuity
It's possible to move money from a qualified retirement account like a 401(k) or IRA into an annuity without triggering an immediate tax bill, provided it's done correctly as a direct rollover. The resulting annuity is typically called a qualified annuity, meaning it was funded with pre-tax dollars and follows the same required-withdrawal rules as the original account. A few practical details worth knowing beforehand: the transfer itself isn't taxable, but it still has to be reported on that year's tax return; only one IRA-to-IRA rollover is allowed within any twelve-month period; and a rollover generally needs to be completed within 60 days, or the untransferred amount can be treated as ordinary taxable income. If you're weighing this move, our 401(k) Calculator, IRA Calculator, and Roth IRA Calculator can help you compare how the balance would grow if it stayed where it is versus moving into an annuity instead.
Frequently Asked Questions
What's the difference between an annuity and a regular investment account?
An annuity is a contract with an insurance company that can include guarantees a plain brokerage or savings account doesn't offer, such as a minimum guaranteed rate or a promise of lifetime income once the payout phase begins. A regular investment account has no such contract behind it — you own the assets directly, can withdraw at any time without a surrender charge, and take on full market risk (or lack of it) yourself. This calculator models the growth math both share; it doesn't model the contractual guarantees, fees, or restrictions that make an annuity legally different.
What does "annuity due" mean versus "ordinary annuity"?
These describe when each period's deposit is credited relative to that period's growth. An ordinary annuity (the default tab above) credits growth first and adds the period's deposit at the end — the more common setup for most deposit-based products. An annuity due adds the deposit at the start of the period instead, so it earns one full extra period of growth — which is why switching to the "Annuity Due" tab always produces a slightly larger ending balance for the same inputs.
Does this calculator account for annuity fees or surrender charges?
No. This tool projects pure growth based on the deposits and rate you enter — it doesn't subtract mortality and expense fees, rider charges, administrative fees, or a surrender charge for withdrawing early, all of which are common on real annuity contracts and can meaningfully reduce the amount you'd actually walk away with. Check a specific contract's fee schedule before comparing it against a number from this page.
What return rate should I use for a fixed annuity versus a variable one?
For a fixed annuity, use the guaranteed rate stated in the contract — it won't change regardless of market performance. For a variable or indexed annuity, there's no single right number since the return depends on the underlying investments or index performance; using a conservative estimate, or running the calculator at a few different rates, gives a more realistic range than assuming the best-case scenario holds every single year.
Can I use this calculator for a 401(k) or IRA instead of an annuity?
The underlying math — a starting balance plus regular deposits growing at a rate over time — is identical, so the numbers will be accurate for that purpose too. The difference is purely in the real-world rules layered on top: contribution limits, tax treatment, and withdrawal penalties vary by account type and aren't modeled here. Our dedicated 401(k) Calculator and IRA Calculator build some of those account-specific rules in, if you want that extra layer of detail.
Why does my end balance change so much when I switch from ordinary annuity to annuity due?
Every single deposit — not just the first one — gets one extra period of growth under annuity due, and that extra period then keeps compounding for the rest of the timeline. Over a handful of years the gap looks small; over a few decades of monthly deposits, that repeated one-period head start adds up to a noticeably larger difference.
Is the interest earned inside an annuity taxed every year?
For most deferred annuities in the U.S., no — earnings grow tax-deferred, meaning you generally don't owe tax on the growth until you actually withdraw money or begin the payout phase. That's different from a regular taxable brokerage account, where interest, dividends, or realized gains are often taxed annually as they occur. Tax treatment depends on the specific contract and your personal situation, so this isn't a substitute for advice from a licensed tax professional.
What happens if I don't add any annual or monthly deposits at all?
Set both to zero and this becomes a plain compound-growth calculator for a single lump sum — the starting principal simply compounds monthly at your entered rate for the number of years you choose, with no additional deposits factored into the schedule or the donut chart.
This calculator provides estimates for general informational purposes only and is not financial, tax, or insurance advice. Annuity contracts vary widely in their fees, surrender terms, and guarantees — consult a licensed financial or insurance professional before making a purchase decision.