# How will my annuity grow?

Computes the value of a fixed deferred annuity from a premium, yearly additions, and a fixed rate, its value after tax, and the same money in a taxable account.

- Page: https://www.acalculator.org/finance/annuity-calculator
- JSON spec: https://www.acalculator.org/finance/annuity-calculator.json
- Version: 6fed2065af90

## Default answer

Example with the default inputs (Starting premium $100,000.00, Added each year $0.00, Yearly interest rate 5%, For how long? (years) 10, Your tax rate 24%): At 5% a year, an annuity with $100,000.00 put in grows to $162,889.46 in 10 years, or $147,795.99 after tax if you take it all out.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| premium | Starting premium | The amount you put into the annuity at the start. |
| add | Added each year | An extra amount added at the start of every year, including the first. |
| rate | Yearly interest rate | The yearly rate the annuity credits, as the percent the value grows in a year. |
| years | For how long? (years) | How many years the annuity grows before payouts or a withdrawal. |
| tax | Your tax rate | Your income tax rate, used on the annuity’s earnings when they come out and on a taxable account’s interest each year. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| value | Your annuity will be worth | The annuity value at the end of the last year, before tax. |
| paidIn | Money put in | The premium plus every addition. |
| interest | Interest earned | The value minus the money put in. |
| afterTax | After tax, if you take it all out | The value minus tax at your rate on the interest earned. |
| taxable | Same money in a taxable account | The balance if the same money earned the same rate but paid tax on the interest every year. |
| deferral | Gain from tax deferral | The annuity after tax minus the taxable account. |

## Method

Each year, value = (value + addition) × (1 + r); after tax = value − tax × (value − money put in); a taxable account grows by (1 + r × (1 − tax)) each year.

## Assumptions

- The rate stays the same every year, as in a fixed or multi-year guaranteed annuity.
- Additions are made at the start of each year, including the first.
- Interest is credited once a year at the yearly rate.
- Surrender charges, fees, and riders are not included. Taking money out early can cost surrender charges.
- “After tax” taxes all the interest at one rate, as if you took it all out at once, and leaves out the 10% additional tax before age 59½.
- This is an estimate for planning, not financial advice.

## Worked examples

1. premium = $100,000.00, rate = 5%, years = 10, tax = 24% gives value = $162,889.46, interest = $62,889.46, afterTax = $147,795.99, taxable = $145,202.31, deferral = $2,593.68. Source: hand calculation in content.mdx: 100,000 × 1.05^10; 100,000 × 1.038^10.
2. premium = $10,000.00, add = $5,000.00, rate = 4%, years = 3, tax = 0% gives value = $27,480.96, paidIn = $25,000.00, deferral = $0.00. Source: hand calculation in content.mdx: 15,000 × 1.04³ + 5,000 × (1.04² + 1.04).
3. premium = $50,000.00, rate = 0%, years = 5, tax = 30% gives value = $50,000.00, interest = $0.00, afterTax = $50,000.00. Source: hand calculation in content.mdx: no interest at 0%.

## FAQ

### What is a fixed deferred annuity?

It is a contract with an insurance company. You pay a premium (once, or over time), and during the accumulation phase the insurer credits interest. A fixed annuity guarantees at least a minimum rate; a multi-year guaranteed annuity (MYGA) locks a rate for a set number of years. Later you can take the money out or turn it into income payments.

### How is the annuity value calculated?

Each year, the value plus any addition earns the yearly rate: value = (value + addition) × (1 + r). With no additions this is premium × (1 + r)^years. $100,000 at 5% for 10 years grows to $162,889.46.

### What does tax deferral add?

In an annuity, earnings are not taxed until they come out. In a taxable account, interest is taxed every year, so less of it compounds. The calculator taxes the annuity’s interest once at the end and the taxable account’s interest every year, at the same rate, and shows the difference.

### What if I need the money early?

Most annuities charge a surrender charge if you take out more than a set amount during the first years. Withdrawals of earnings are taxed as income, and before age 59½ they may also carry a 10% additional tax. The calculator does not include surrender charges or that 10%.

### Is the money in an annuity guaranteed?

A fixed annuity’s rate is set by the insurer and guaranteed in the contract, but the guarantee is only as strong as the insurer: the SEC’s investor site notes the insurer’s obligations depend on its financial strength and claims-paying ability. Variable and indexed annuities work differently and can lose value or cap your gains.

### How do I turn the value into income?

Use the annuity payout calculator to see the level payout the value could pay for a number of years. A lifetime payout from an insurer is priced differently, with life expectancy and the insurer’s rates, so ask for a quote.

## Sources

- U.S. Securities and Exchange Commission, Investor.gov: Annuities (fixed, indexed, and variable annuities; surrender charges; taxes; claims-paying ability). https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/annuities
- Internal Revenue Service, Publication 575, Pension and Annuity Income. https://www.irs.gov/publications/p575
- Accumulation of level deposits: S. A. Broverman, Mathematics of Investment and Credit, chapter 2.