Annuity vs Lump Sum Calculator
Compare a one-off lump sum with regular annuity payments. See the present value, how long it takes to break even and the return your annuity implies.
Compare Your Payout Options
Enter the lump sum on offer, the monthly annuity payment and how long it lasts, then the annual return you expect to earn. The calculator shows which option is worth more in today’s money.
Annuity vs Lump Sum
Compare regular payments against a single payout.
Annuity or Lump Sum?
Key ideas behind the comparison
Present Value
Money received later is worth less than money today. Discounting each annuity payment at your expected return gives a fair comparison with the lump sum.
Implied Return
The annuity implies a return on the lump sum you give up. If you could reliably beat that return elsewhere, the lump sum may come out ahead.
Risk and Longevity
An annuity shifts investment and longevity risk to the provider. A lump sum gives flexibility but you carry the risk of markets and of outliving your savings.
Inflation and Tax
Fixed annuity payments lose buying power over time, and tax rules differ between the two options. Check both before you decide.
Annuity vs Lump Sum Comparison
A general overview of how the two payout options compare on the factors that matter most.
| Factor | Annuity | Lump Sum | Typically Favours |
|---|---|---|---|
| Income certainty | Predictable regular payments | Depends on your investments | Annuity |
| Flexibility | Limited once chosen | Spend, invest or gift as needed | Lump sum |
| Longevity risk | Covered by the provider | You may outlive the money | Annuity |
| Investment risk | Taken by the provider | Taken by you | Annuity |
| Inflation protection | Only if payments increase | Possible through growth assets | Depends on terms |
| Passing wealth on | Often limited or ends on death | Remaining funds can be inherited | Lump sum |
Annuity vs Lump Sum FAQ
Answers to the most common questions about choosing between an annuity and a lump sum.
It depends on your circumstances. An annuity gives a predictable income and removes investment risk, while a lump sum gives flexibility and control but means you carry the investment and longevity risk. Comparing the present value of the annuity with the lump sum is a useful starting point.
Each future payment is discounted back to today using your expected annual return. The sum of all discounted payments is the present value. If it is higher than the lump sum offer, the annuity is worth more at that return rate.
It is the annual return you would need to earn on the lump sum to be able to withdraw exactly the same payments over the same period. If you expect to beat that return safely, the lump sum may be the better choice; if not, the annuity may be.
The simple break-even point is the time when the total annuity payments received equal the lump sum amount. It ignores investment growth and inflation, so use it alongside the present value comparison.
No. It is an educational tool based on the figures you enter. It does not account for tax, fees, health, life expectancy or provider risk, so consider speaking to a qualified financial adviser before making a decision.