How the Annuity Calculator Works
An annuity that is still growing is a pot of money that you add to on a regular schedule, and that earns a return. Over many years, the returns can become larger than all of your own deposits put together. The Annuity Calculator shows how big the pot could be at a target age. It can also work backwards, and tell you how much you need to deposit to reach a goal.
What you enter
- Your age now and your target age: the time between them is how long the money grows.
- Current balance: what is in the annuity or savings today.
- Monthly deposit: what you add each month. In goal mode you enter the amount you want to reach instead, and the calculator finds the deposit.
- When you deposit: at the end of each month, or at the start. A deposit at the start earns one more month of growth.
- Yearly raise in the deposit (optional): if you plan to add more each year, for example 3% more as your pay grows.
- Yearly return: the growth rate you expect.
- Yearly inflation: used only to show the result in today's money.
How the results are worked out
Each month, the balance earns the monthly return, and the deposit is added. With a monthly return r and n months, and a steady deposit at the end of each month, this comes to one formula:
value = balance x (1 + r)^n + deposit x ((1 + r)^n - 1) / r
The first part is how your current balance grows. The second part is how the stream of deposits grows. With a yearly raise, or with deposits at the start of the month, the calculator runs the same steps month by month.
value in today's money = value / (1 + inflation)^years
A worked example
You are 30, and you have $25,000. You deposit $500 at the end of each month until you are 65, and earn 7% a year. Inflation is 2.5%.
| Result | Amount |
|---|---|
| Value at 65 | $1,188,181.10 |
| Money you put in ($25,000 + $500 x 420 months) | $235,000.00 |
| Growth | $953,181.10 (80% of the total) |
| Value in today's money | $500,665.14 |
Of the $1.19 million, four fifths is growth. But 35 years of inflation shrinks it: in today's money it is worth about $500,000. That is why it helps to look at both numbers.
Chart: how the balance grows
Age 30 █ $25,000 Age 40 █████ $136,784 Age 50 ████████████ $361,432 Age 60 ███████████████████████████ $812,898 Age 65 ████████████████████████████████████████ $1,188,181
The calculator draws every year as a bar. Your own money is grey, and the growth on top is green. The green part gets bigger and bigger as the years pass. This is compounding: growth earns growth.
What changes the result
Starting age has the biggest effect. The same $25,000 and $500 a month, at 7%, until 65:
| Start at age | Value at 65 |
|---|---|
| 25 | $1,720,192 |
| 30 | $1,188,181 |
| 35 | $812,898 |
| 40 | $548,171 |
| 45 | $361,432 |
The return also matters. The same plan starting at 30:
| Yearly return | Value at 65 |
|---|---|
| 5% | $711,389 |
| 6% | $915,444 |
| 7% | $1,188,181 |
| 8% | $1,554,255 |
Other choices in the calculator:
- Depositing at the start of each month raises the example to $1,193,434.
- Raising the deposit 3% a year raises it to $1,561,238, with $387,772 put in.
Goal mode
Choose "How much must I deposit to reach a goal?" and enter the amount you want. In the example, to reach $1,000,000 by 65 you would need to deposit about $395.52 a month. With a 3% yearly raise and deposits at the start of the month, the first year's deposit could be as low as $278.04. If your current balance alone will already grow to the goal, the calculator tells you that no deposits are needed.
Tips
- Start early. In the example, starting at 30 instead of 40 more than doubles the result.
- Try lower returns. A return of 7% is not guaranteed. Test 4% or 5% to see a cautious result.
- Look at today's money. It shows what the total could buy, not just its size.
- Raise your deposit when your pay rises. Small increases, kept up for years, add a lot.
What this calculator does not include
- Taxes, fees and charges for the annuity, which lower what you receive.
- A return that changes from year to year. The calculator uses a steady rate.
- Surrender charges or early withdrawal penalties.
- The payout stage. To see the income the balance could pay, use an annuity payout calculator.
This tool gives an estimate for general information only. It is not financial or investment advice. A real annuity contract sets its own rates, fees and rules.