Estimate your monthly income from an annuity โ compare life-only, joint-survivor, and period-certain options, and see exactly how much of each payment is tax-free.
This calculator focuses exclusively on the decumulation phase โ the income distribution period when the annuity starts paying you. For modeling how a contract's value grows before payments begin, see the Annuity Calculator. Here, you'll enter your annuity contract value (or the lump sum you plan to deposit into a SPIA), your current age, the payout option, joint annuitant age if applicable, and whether payments are monthly or annual. The tool references current SPIA pricing benchmarks and annuitization factors to produce a realistic income estimate. You'll also see the exclusion ratio โ the portion of each payment that represents a tax-free return of your original premium โ which affects your tax bill on each payment.
1. Enter your current annuity contract value or the lump sum for an immediate annuity purchase.
2. Enter your age (and your spouse's/joint annuitant's age if choosing a joint payout option).
3. Select your payout option: Life Only, Life with Period Certain (10, 15, 20 years), Joint and Survivor (100% or 50% to survivor), or Period Certain Only.
4. Choose payment frequency: monthly, quarterly, or annual.
5. Enter your original cost basis (total premiums paid) to calculate the exclusion ratio for tax purposes.
6. Click Calculate to see estimated payment amount, total expected lifetime income, exclusion ratio, and taxable vs. non-taxable portion per payment.
Annuity payout amounts are calculated using an annuitization factor โ essentially the present value of the payment stream discounted at the insurer's payout rate:
Monthly Payment = Annuity Value รท Annuitization Factor
The annuitization factor accounts for your life expectancy (using actuarial mortality tables), the chosen payout option, and current interest rates. Higher interest rates = smaller factors = larger payments. The exclusion ratio determines taxability:
Exclusion Ratio = Total Investment in Contract รท Expected Return (total anticipated payments)
Each payment's non-taxable portion = Payment ร Exclusion Ratio. Once you've recovered your full cost basis, all remaining payments are fully taxable as ordinary income.
A "Life Only" option always pays the highest monthly amount because the insurer keeps any remaining balance when you die. A "Joint and 100% Survivor" option pays the lowest monthly amount because it covers two lifetimes. Period-certain options sit in between and are often the right compromise for retirees who want spousal protection without accepting a drastically lower payment. The exclusion ratio is particularly important if your basis is high relative to contract value โ which can happen with MYGAs or SPIAs funded with after-tax dollars.
Retirees arrive at the annuity payout phase two different ways. The first path: immediate annuitization of a deferred contract. You've been building a variable or fixed annuity for 20 years; at retirement you elect annuitization and lock into a payment stream based on the accumulated value. The second path: buying a SPIA โ a single premium immediate annuity funded with a fresh lump sum from savings, a 401(k) rollover, or a pension buyout. The payment mechanics are identical, but the tax treatment differs significantly. In a deferred-contract annuitization, the exclusion ratio typically applies. In a qualified-money SPIA (funded with IRA or 401(k) dollars), 100% of each payment is taxable because no after-tax basis exists.
A 70-year-old male using a $300,000 non-qualified lump sum for a SPIA with Life Only payout can expect approximately $1,800โ$2,000/month in 2026 based on current insurer pricing โ a 7.2%โ8.0% annual payout rate. The equivalent rate for a joint-and-survivor option drops to approximately 6.2%โ6.8%.
The most consequential annuity payout decision isn't how much to annuitize โ it's which payout option to select. Here's the tradeoff in plain numbers:
For a 68-year-old couple with a $400,000 annuity contract:
The cost of spousal protection (Life Only vs. Joint 100%) is $360/month โ but that protection covers potentially 20โ25 years of the surviving spouse's income. The "right" answer depends heavily on other income sources. If the spouse has their own pension and Social Security, the lower-payout joint option may sacrifice income unnecessarily. If the annuity is the household's primary income, joint coverage is nearly essential.
Most retirees are surprised to learn that a meaningful portion of each annuity payment is tax-free โ it's a return of the premiums they already paid with after-tax dollars. The exclusion ratio prevents double taxation of that original cost basis.
Example: You deposited $200,000 into a non-qualified deferred annuity over the years, and the contract is now worth $350,000. Your cost basis is $200,000. You elect a Life Only payout and expect to receive total lifetime payments of $560,000 (based on your life expectancy). Exclusion ratio: $200,000 รท $560,000 = 35.7%. On a $2,400/month payment, $857 is tax-free return of basis and $1,543 is taxable ordinary income. Once you've received enough payments to recover the full $200,000 basis, 100% of subsequent payments become taxable.
Your age at annuitization is the dominant driver: younger annuitants receive smaller per-period payments because the insurer expects to pay over a longer period. Current interest rates directly affect the annuitization factor โ a higher-rate environment like 2026 produces larger payments than the near-zero rate environment of 2020โ2021. The payout option chosen creates meaningful payment differences of 10โ25% between life-only and joint-survivor choices. Your cost basis determines the exclusion ratio and the after-tax value of each dollar received. Gender and state of issue affect some insurer pricing (though gender-neutral tables are increasingly common). Finally, health status โ while standard annuities use population mortality tables, some insurers offer "impaired risk" or "medically underwritten" annuities that pay higher monthly amounts to individuals with shorter-than-average life expectancies.
Helen chooses a Life with 10-Year Period Certain option. At current pricing, her monthly payment is approximately $1,890. Her expected total payments (life expectancy 17 years): $1,890 ร 12 ร 17 = $385,560. Exclusion ratio: $180,000 รท $385,560 = 46.7%. Monthly tax-free amount: $1,890 ร 46.7% = $883. Monthly taxable amount: $1,007. At her 22% marginal rate, she pays ~$221/month in federal tax on the payout โ not the full $1,890.
Since the money came from a traditional IRA (all pre-tax), 100% of every payment is taxable. They choose Joint and 100% Survivor. Monthly payment estimate: ~$2,740. All $2,740 is ordinary income each month. Combined with Social Security of ~$4,200/month, their total household income is ~$6,940/month, placing them in the 22% MFJ bracket.
1. Shop at least three SPIA quotes before committing โ monthly payment offers from different insurers on the same deposit can vary by 5โ10%, a difference that compounds to tens of thousands of dollars over a lifetime.
2. Coordinate the payout option with your Social Security election. If one spouse delays Social Security to 70, the survivor's income protection need from the annuity may be lower, allowing a higher life-only payout.
3. Don't annuitize your entire nest egg. Most financial planners suggest annuitizing only enough to cover essential expenses; keep discretionary money in liquid, investable assets.
4. Get the cost basis right before annuitizing. Errors in the exclusion ratio calculation mean you overpay taxes for potentially decades. Keep all premium receipts and Form 1099-R records.
5. Consider a deferred income annuity (DIA) or QLAC for longevity insurance โ these start payments at a later age (like 80 or 85) and dramatically reduce the cost of coverage for late-life income needs.
6. Review the insurer's financial strength rating (A.M. Best A or above) before annuitizing. Once annuitized, you're dependent on the insurer's claims-paying ability for the rest of your life.
A: For a 70-year-old purchasing a non-qualified SPIA with Life Only payout, a $300,000 deposit pays approximately $1,800โ$2,000 per month in 2026, depending on the insurer and current interest rates. Joint-and-survivor options pay roughly 15โ20% less.
A: The exclusion ratio is the portion of each annuity payment that is a tax-free return of your original cost basis (after-tax premiums). It equals your total investment divided by your expected lifetime total payments.
A: A Single Premium Immediate Annuity is an insurance contract funded with a one-time lump-sum payment that begins distributing income immediately โ typically within 30 days of purchase.
A: For qualified annuities (funded with pre-tax IRA or 401(k) money), 100% of each payment is taxable as ordinary income. For non-qualified annuities, only the earnings portion is taxable; the return of cost basis is excluded using the exclusion ratio.
A: Life-only pays the highest monthly amount but stops at the annuitant's death. Joint-and-survivor continues paying the surviving annuitant โ at the same or reduced rate โ for their lifetime. The cost of the survivor benefit is a permanently lower monthly payment.
A: No โ once you annuitize, the payout option is typically irrevocable. That's why comparing options carefully before annuitization is critical.
A: Under a Life Only option, payments stop and the insurer keeps the remaining value. A Period Certain option guarantees payments for a minimum number of years regardless; your beneficiary receives the remaining guaranteed payments.
A: There's no universal answer โ but later generally means higher monthly payments because the payout period is shorter. Many retirees annuitize between 68 and 75, balancing the desire for income certainty with keeping assets liquid for early retirement years.
Brief disclaimer: This calculator provides estimates for educational and planning purposes only. Actual annuity payouts, exclusion ratios, and tax treatment depend on the specific contract, insurer pricing, interest rates at time of annuitization, and applicable tax laws. Annuity guarantees are backed by the financial strength of the issuing insurance company. Results should be treated as planning guidance rather than financial, insurance, or tax advice.