Annuity Calculator

An annuity is a series of equal payments made at regular intervals. Present value (PV) is what a future series of payments is worth today. Future value (FV) is what regular payments grow to over time with interest. Annuities are used for mortgages, pensions, savings plans, and insurance products.

Ordinary annuity (most common): payments at the END of each period (mortgages, car loans). Annuity due: payments at the BEGINNING (rent, lease). Annuity due payments are worth slightly more because each payment earns interest for one extra period.

A lump sum is a single payment. An annuity spreads payments over time. The time value of money means $1,000/month for 10 years is NOT the same as $120,000 today — the lump sum today is worth more because it can be invested. Present value calculates the lump-sum equivalent.

For insurance annuities, rates depend on market conditions — typically 3-6% for fixed annuities. Variable annuities depend on investment performance. For calculating NPV of business cash flows, use your discount rate or WACC. For personal finance, compare to what you could earn investing the money.

If you want $3,000/month for 25 years with 5% return: PV = $3,000 x ((1 - (1.05/12)^-300) / (0.05/12)) = ~$511,000 needed at retirement. This is how pension obligations and retirement nest egg requirements are calculated.