Calculator
Enter your figures below. The page stays in a single-column flow, while the form uses a responsive input grid.
Example Data Table
This example shows one sample scenario and the resulting comparison outputs.
| Lump Sum | Annuity Payment | Frequency | Discount Rate | Growth Rate | Tax Rate | Horizon | After-Tax Lump Sum | After-Tax Annuity PV | Break-Even | Decision |
|---|---|---|---|---|---|---|---|---|---|---|
| $250,000.00 | $1,800.00 | Monthly | 4.50% | 2.00% | 18.00% | 25.00 years | $205,000.00 | $328,617.35 | Year 14 | The annuity has the higher after-tax present value under these assumptions. |
Formula Used
1) Discounted value of each payment
Present Value = Sum of each payment divided by its discount factor. For end-period payments, the first payment is discounted one period. For beginning-period payments, the first payment is immediate.
2) Growing annuity payment stream
Paymentt = Initial Payment × (1 + g)t-1. Here, g is the annuity growth rate per payment period. This supports level payouts and cost-of-living adjustments.
3) Equivalent payment from the lump sum
Equivalent Payment = Lump Sum ÷ Annuity Factor. The annuity factor is the discounted sum of one unit paid across all chosen periods.
4) Break-even comparison
Break-even occurs when cumulative discounted annuity value becomes greater than or equal to the after-tax lump sum. This helps compare timing and total value together.
This tool treats a lifetime annuity as an expected payout horizon using the longer of life expectancy and years certain. It is a mathematical estimate, not actuarial advice.
How to Use This Calculator
- Enter the lump sum offer.
- Enter the annuity payment for each period.
- Select how many payments happen each year.
- Enter the annual discount rate you want to use.
- Add the annuity growth rate for inflation adjustments.
- Enter an effective tax rate for both choices.
- Provide life expectancy years and any guaranteed years certain.
- Choose whether payments arrive at the beginning or end.
- Press Calculate Now to show results above the form.
- Review the table, break-even point, and graph.
- Download the result as CSV or PDF if needed.
Frequently Asked Questions
1) What does this calculator compare?
It compares a one-time lump sum against a stream of annuity payments. It estimates present value, total payouts, break-even timing, and an equivalent payment that matches the lump sum under your assumptions.
2) Why is a discount rate required?
Money received later is usually worth less than money received now. The discount rate converts future annuity payments into present-value terms so both choices can be compared on one consistent basis.
3) What does the growth rate do?
The growth rate increases future annuity payments over time. Use it when the annuity has cost-of-living adjustments or another annual increase built into the payout schedule.
4) Why are life expectancy and years certain both included?
Some annuities pay for life, while others include a guaranteed minimum term. This calculator uses the longer of those two horizons to create a practical estimate for comparison.
5) Does this calculator give financial advice?
No. It gives a mathematical comparison based on your numbers. Real decisions may also depend on health, inflation uncertainty, insurer strength, taxes, estate goals, and personal risk tolerance.
6) What is the break-even year?
It is the first year when cumulative discounted after-tax annuity value catches or exceeds the after-tax lump sum. If that never happens within your horizon, the tool shows that clearly.
7) Should I enter taxes for both options?
This version applies one effective tax rate to both choices for a quick comparison. If your tax treatment differs between the two, adjust the inputs or customize the logic further.
8) Can I use monthly or weekly annuity payments?
Yes. Choose the payment frequency that matches your annuity. The calculator converts discounting and growth to a per-period basis before performing the present-value and break-even calculations.