An annuity is a stream of payments that last for a defined number of years or for the rest or your life. You buy an annuity by paying one or more premiums to an insurance company. The cash value of an annuity on its annuity date -- the date it begins paying out -- consists of your premiums plus any interest on those payments minus fees and the cost of insurance. You could use a complicated mathematical formula to calculate the monthly income from the annuity, but annuity payment calculators are readily available on the Internet.
Using an Annuity Calculator
You can use an annuity calculator for a fixed annuity, which is one that pays the same amount each month and is based on a set interest rate. To use the calculator, you enter the cash value, also called the present value, the monthly interest rate and the number of months in the annuity. For example, if you have a 6 percent, 30-year fixed annuity with a cash value of $200,000, you begin by dividing the annual interest rate by 12 and multiplying the number of years by 12. In this example, you enter $200,000 for the present value, 0.5 percent (6 percent divided by 12) for the monthly interest rate and 360 months (30 years times 12 months per year) for the number of periods. The result is a monthly payment of $1,199.10. If you have a lifetime annuity, use your remaining life expectancy, available from Internal Revenue Service Publication 590.
Eric Bank is a senior business, finance and real estate writer, freelancing since 2002. He has written thousands of articles about business, finance, insurance, real estate, investing, annuities, taxes, credit repair, accounting and student loans. Eric writes articles, blogs and SEO-friendly website content for dozens of clients worldwide, including get.com, badcredit.org and valuepenguin.com. Eric holds two Master's Degrees -- in Business Administration and in Finance. His website is ericbank.com.