Find out how much income a lump sum can pay out each period over a set number of years, including interest earned on the remaining balance. Plan a retirement drawdown or structured payout.
Income from a lump sum
The annuity payout (or drawdown) calculation tells you how much equal income a lump sum can provide over a fixed number of years while the remaining balance keeps earning interest. It's the reverse of saving: instead of building a balance with deposits, you draw it down with withdrawals. The math is the same amortization formula used for loans — your balance behaves like a loan the "bank" (you) is repaying to yourself.
For example, a $500,000 balance earning 5% paid out monthly over 25 years provides about $2,923 per month — roughly $877,000 in total payouts, of which $377,000 is interest earned along the way. A higher rate or shorter period raises each payment; a longer period lowers it. This is useful for planning retirement withdrawals, structured settlements, or any fixed-term income stream.
Convert a lump sum into a steady paycheck for a fixed number of years while the balance keeps earning.
Because the unpaid balance keeps earning, total payouts exceed the starting balance — the gap is interest earned.
Higher rates and shorter terms mean larger payments; longer terms stretch a balance into smaller, longer-lasting income.
An annuity payout converts a lump sum into a stream of periodic payments, which is the amortization formula applied to your own money rather than a lender's. Period-certain annuities pay for a fixed number of years and are pure arithmetic; life annuities pay until death and are priced by an insurer using mortality tables, so they involve risk pooling as well as interest. The trade-off is real: a life annuity protects against outliving your money — the one risk a self-managed portfolio cannot diversify away — but usually surrenders any remainder to the insurer, and it is only as secure as the issuing company.
Payment = P × [ i(1 + i)^n ] ÷ [ (1 + i)^n − 1 ]Perpetuity (never depleting): Payment = P × iTotal received = Payment × nwhere:
Assumptions: Period-certain arithmetic. Life annuity quotes depend on age, sex, and whether payments are single or joint life, and typically include the insurer's expense and profit load. Inflation protection, where offered, reduces the starting payment substantially.
A period-certain annuity, compared with simply living off the interest.
Result$2,922.95 a month for 25 years — $876,885 in total
The 40% higher payment is the price of consuming principal. If you live past 25 years the period-certain annuity stops paying, which is exactly the gap a life annuity fills — and why the two products are priced so differently despite superficially similar quotes.