Calculate the monthly payout from a fixed annuity based on your principal, interest rate, and payout period.
This calculator estimates the fixed monthly payout from a lump-sum annuity - a financial product where you pay an insurance company a lump sum (the principal) in exchange for a guaranteed series of payments over a set period, with an interest rate determining how the principal is drawn down over that time.
This calculator uses the standard present-value-of-annuity formula (the same math used for loan payments, but in reverse): it finds the fixed monthly payment that would fully draw down the principal to zero over the payout period, given the interest rate earned on the remaining balance each month.
Formula: Monthly Payout = [Principal × Monthly Rate] ÷ [1 − (1 + Monthly Rate)−Total Months], where Monthly Rate = Annual Interest Rate ÷ 12 and Total Months = Payout Years × 12. Each month, the remaining balance earns interest, and the fixed payout is split between an interest portion and a principal (balance reduction) portion - similar to a mortgage amortization schedule, but in reverse.
Example: A CA$100,000 principal annuitized at a 4.5% annual interest rate (example rate — enter the actual rate quoted by an insurer) over a 20-year payout period would provide a monthly payout of about CA$632.65, for total payments of roughly CA$151,836 over 20 years - about CA$51,836 more than the original principal, representing the interest earned along the way. (Note: this example is for illustration purposes only - actual annuity quotes vary by insurer, age, sex, health, and current rates, and may include guarantees or features not modelled here.)
An annuity is a contract with a life insurance company that converts a lump sum into a guaranteed income stream, which can be for a fixed period (a "term certain" annuity, similar to what this calculator models) or for life (a "life annuity," where payments continue as long as you live, regardless of how long that is - which depends on actuarial factors including age and sex, not just the interest rate). Annuities are one option for converting RRSP or RRIF savings into guaranteed retirement income (see our RRSP Calculator and RRIF Calculator for the alternative of managing the funds yourself), and can provide certainty that you won't outlive your money - a risk that self-managed RRIF withdrawals don't fully eliminate. The trade-off is generally a loss of flexibility and access to the principal once the annuity is purchased, and the payout rate depends on prevailing interest rates at the time of purchase, which means annuity purchases made during periods of low interest rates can lock in lower payouts for the rest of the contract. Income from a non-registered annuity may be partially tax-free (a return of capital) depending on its structure, while annuity income from registered funds (RRSP/RRIF) is fully taxable, similar to RRIF withdrawals, and may qualify for the pension income tax credit and income splitting if eligible.
A term-certain annuity pays a fixed income for a specified number of years, after which payments stop (regardless of whether you're still living - any remaining value may go to your estate, depending on the contract). A life annuity pays income for as long as you live, which could be shorter or much longer than a term-certain period - its payout rate depends on actuarial factors like age and sex in addition to interest rates. This calculator models the term-certain case.
Yes - converting RRSP or RRIF savings to an annuity (sometimes called "annuitizing") is one option for turning retirement savings into guaranteed income, as an alternative to managing RRIF withdrawals yourself. Annuity income from registered funds is fully taxable, similar to RRIF withdrawals, when received.
An annuity provides certainty - a guaranteed income that doesn't depend on investment performance or how long your money lasts (especially for a life annuity). Managing your own RRIF gives you more flexibility and control, and the potential for continued investment growth, but carries the risk of poor returns or outliving your savings. Some retirees use a mix - annuitizing a portion for guaranteed "floor" income while keeping the rest invested.
Not necessarily - this calculator uses a simplified interest rate to illustrate the math, but actual annuity quotes from insurers incorporate their own pricing, expenses, profit margins, and (for life annuities) mortality assumptions. Always get an actual quote from a licensed insurer or annuity broker for a real comparison, and shop around since quotes can vary meaningfully between providers.
It depends on the source. Annuity income purchased with registered funds (RRSP/RRIF money) is fully taxable as income when received, similar to RRIF withdrawals. Annuity income from non-registered funds may be partially a tax-free "return of capital," depending on how the annuity is structured (prescribed vs. non-prescribed taxation) - a tax professional can clarify the treatment for a specific contract.
Once purchased, most annuities have a fixed payout that doesn't change with future interest rate movements - you lock in the rate available at the time of purchase. This means buying an annuity when rates are low could lock in a lower payout for the life of the contract, while buying when rates are higher could lock in a more favourable payout - timing can matter significantly for annuity purchases.
Disclaimer: The information, rates, and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. The interest rate used is an example only and does not represent a quote from any insurer - actual annuity rates depend on the insurer, your age, sex, health, and current market conditions, and may include features (such as guarantee periods or life contingencies) not modelled by this calculator. Always obtain a quote from a licensed insurer or financial adviser before purchasing an annuity.