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Compute the future value of monthly payments with compound interest — see contributions vs interest earned.
Enter your monthly payment, the annual interest rate and the number of years. The calculator compounds monthly and shows the future value, your total contributions and the interest earned.
Formula: Monthly rate r = annual ÷ 12, months n = years × 12. FV = PMT × (((1+r)^n − 1) ÷ r). Example: $500/month at 6% for 20 years → $231,020.45 ($120,000 contributed + $111,020.45 interest).
An annuity is one of the most powerful concepts in personal finance: a series of regular payments that grows through compound interest into a far larger sum than the total you put in. Whether you are saving for retirement, funding a child’s education, or planning how to turn a lump sum into steady income, the math is the same, and getting it right matters enormously. The Annuity Calculator above computes the future value of monthly payments at a given interest rate, showing you exactly how much your contributions will grow and how much of the total comes from compound interest. This complete guide explains how to use the calculator, what annuities really are, the future value formula with worked examples, and the common mistakes that cost savers thousands. This content is educational and is not financial advice.
Follow these steps to project the growth of regular payments:
In finance, an annuity is a series of equal payments made at regular intervals. The word also names an insurance product, the annuity contract, in which you pay an insurer a lump sum or premiums and receive guaranteed income later. Both share the same mathematics, but they serve different purposes: the math helps you project savings growth, while the insurance product transfers longevity risk to an insurer.
The two fundamental flavors are the ordinary annuity and the annuity due. In an ordinary annuity, payments occur at the end of each period, like a mortgage payment or a monthly 401(k) contribution deducted from your paycheck. In an annuity due, payments occur at the beginning of each period, like rent. An annuity due always grows slightly more because each payment earns one extra period of interest.
Annuities also divide into deferred annuities, where you contribute now and receive income later, and immediate annuities, where a lump sum starts paying income within a year. Insurance companies further offer fixed annuities with guaranteed rates, variable annuities whose payouts track investment performance, and indexed annuities tied to a market index with caps and floors. Each carries different fees, guarantees, and tax treatment.
The magic ingredient is compound interest: interest earned on previously earned interest. In the early years your contributions do most of the work, but over decades the interest snowballs until it dwarfs what you put in. That crossover, where growth exceeds contributions, is the single most motivating fact in retirement planning, and the calculator makes it visible by splitting the total into contributions versus interest.
The future value of an ordinary annuity with monthly compounding is:
FV = PMT × (((1 + r)n − 1) ÷ r)
where PMT is the monthly payment, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of months (years × 12). For an annuity due, multiply the result by (1 + r).
Two worked examples with real numbers:
Worked Example 1: Monthly payment of 500 dollars, 6 percent annual interest, 20 years. Monthly rate r = 0.06 ÷ 12 = 0.005. Months n = 20 × 12 = 240. Compute (1.005)240 = 3.3102. Then ((3.3102 − 1) ÷ 0.005) = 462.04. Future value: 500 × 462.04 = 231,020 dollars. Total contributions: 500 × 240 = 120,000 dollars. Interest earned: 231,020 − 120,000 = 111,020 dollars. Nearly half the total came from compounding.
Worked Example 2: Monthly payment of 300 dollars, 7 percent annual interest, 30 years. Monthly rate r = 0.07 ÷ 12 = 0.005833. Months n = 360. Compute (1.005833)360 = 8.1143. Then ((8.1143 − 1) ÷ 0.005833) = 1,219.59. Future value: 300 × 1,219.59 = 365,877 dollars. Total contributions: 300 × 360 = 108,000 dollars. Interest earned: 365,877 − 108,000 = 257,877 dollars. Here compounding contributed more than twice what was deposited, which shows why starting early and staying invested matters more than the payment size.
Let us model a realistic retirement savings plan: you are 30 years old, you invest 400 dollars every month, you earn an average 7 percent annual return, and you retire at 65, giving you 35 years of compounding.
Monthly rate r = 0.07 ÷ 12 = 0.005833. Months n = 35 × 12 = 420. Compute (1.005833)420 = 11.4978. Then ((11.4978 − 1) ÷ 0.005833) = 1,799.62. Future value: 400 × 1,799.62 = 719,848 dollars. Total contributions: 400 × 420 = 168,000 dollars. Interest earned: 719,848 − 168,000 = 551,848 dollars.
Read that again: 168,000 dollars of your money became 719,848 dollars, with compounding contributing 551,848 dollars, more than triple your deposits. Now compare starting ten years later at age 40 with the same 400 dollars a month for 25 years: n = 300, (1.005833)300 = 5.7254, factor = 810.06, future value = 324,024 dollars. Those first ten years were worth nearly 396,000 dollars of future wealth. This is why financial planners repeat the same advice: the best time to start was ten years ago, and the second-best time is today.
A practical note: this projection ignores inflation, taxes, and fees. At 3 percent inflation, 719,848 dollars in 35 years has the purchasing power of about 255,000 dollars today. That does not make the plan bad; it means your 400-dollar monthly contribution should rise with your income over time to keep pace.
Annuities also work in reverse: converting a lump sum into steady income. Suppose you retire with 250,000 dollars and want it to pay you monthly for 20 years at 5 percent annual interest. The payout formula is:
Monthly payment = PV × r ÷ (1 − (1 + r)−n)
Monthly rate r = 0.05 ÷ 12 = 0.0041667. Months n = 240. Compute (1.0041667)240 = 2.7126, so (1 + r)−n = 0.36865. Denominator: 1 − 0.36865 = 0.63135. Monthly payment: 250,000 × 0.0041667 ÷ 0.63135 = 1,649.89 dollars per month.
Total received over 20 years: 1,649.89 × 240 = 395,974 dollars, of which 145,974 dollars is interest earned while the balance amortizes. This is exactly how an immediate annuity from an insurance company is priced, except the insurer pools thousands of retirees so that those who live longer are funded by those who do not, which is why a life annuity can pay more per month than this fixed 20-year schedule.
The inflation warning applies here too. At 3 percent annual inflation, a fixed 1,650-dollar monthly payment has the purchasing power of only about 914 dollars after 20 years (1,650 ÷ 1.0320). Retirees who need their income to keep pace with prices should look at inflation-adjusted annuities or keep part of their portfolio in growth investments.
1. Confusing annual and monthly rates. The formula needs the monthly rate, which is the annual rate divided by 12, not the annual rate itself. Using 6 percent as the monthly rate instead of 0.5 percent overstates growth by an absurd margin. Always convert first.
2. Ignoring fees and taxes. A 7 percent market return with a 1.5 percent annuity fee and taxes on withdrawals is really a 5 percent return to you. Over 30 years, the difference between 7 and 5 percent on 500 dollars a month is roughly 300,000 dollars of lost growth.
3. Forgetting inflation. Projecting 719,848 dollars in 35 years without adjusting for inflation creates a false sense of security. Always translate long-term projections into today’s dollars to judge whether the plan truly meets your needs.
4. Stopping contributions during market drops. Pausing payments when markets fall locks in the worst of both worlds: you miss the recovery and you break the compounding chain. The investors who benefit most from volatility are those who keep contributing through it.
5. Choosing the wrong annuity type. A variable annuity with high fees is a poor substitute for simply investing, while a retiree who fears outliving savings may genuinely need the guaranteed income of a fixed annuity. Match the product to the problem; when in doubt, consult a fiduciary advisor.
Annuity math connects to broader planning. Use our Investment Calculator to project lump-sum growth, try the Savings Calculator for goal-based saving plans, or run the full Retirement Calculator to see how annuity income fits your retirement picture.
This page provides an Annuity Calculator that computes the future value of monthly payments (ordinary annuity) given a monthly payment amount, annual interest rate, and number of years. Core formula: FV = PMT × (((1+r)^n − 1)/r), where r = annual rate/12 and n = years × 12; contributions = PMT × n; interest = FV − contributions. Key facts: $500/month at 6% for 20 years grows to $231,020.45 ($120,000 contributions + $111,020.45 interest); annuity-due payments (beginning of period) earn one extra period of interest. Page topic: future value of annuities for retirement and savings planning. Educational content, not financial advice. Last reviewed October 2026.
A series of equal payments at the end of each period — like monthly retirement contributions. This calculator models exactly that.
At 6% for 20 years: about $231,020 — $120,000 of your contributions plus $111,020 of compound interest.
FV = PMT × (((1+r)^n − 1) ÷ r), with r the monthly rate and n the number of months. The calculator above applies it instantly.
A lump sum compounds the whole amount from day one, but most people build wealth through regular payments — an annuity shows what steady contributions become.
Yes — payments at the start of each month (annuity due) earn one extra month of interest versus end-of-month payments. The difference is small over long periods.
An annuity is an insurance contract that can guarantee income for life; an IRA is a tax-advantaged account that holds your investments. You can actually hold an annuity inside an IRA. They solve different problems: annuities insure against outliving your money, while IRAs grow your savings tax-efficiently.
Fixed annuity payments lose purchasing power over time. At 3 percent inflation, a $1,650 monthly payment buys what about $914 buys today after 20 years. Inflation-adjusted annuities exist but start with lower payments and cost more.
It depends on the contract. A life-only annuity stops paying at death; a period-certain or joint-life annuity continues to a spouse or beneficiary for the guaranteed term. A deferred annuity in the accumulation phase generally passes its account value to your named beneficiaries.
Sources and methodology: future value uses the ordinary-annuity formula FV = PMT × (((1+r)^n − 1) ÷ r) with monthly compounding (r = annual ÷ 12); payout uses the amortization formula; inflation illustration uses 3% annual. Educational content, not financial advice. Last reviewed October 2026.
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