Fixed Annuity Calculator

How does a fixed annuity grow?

A fixed annuity grows by compounding a guaranteed rate, tax-deferred, for a set term. Also called a multi-year guaranteed annuity or MYGA, it is a contract with an insurance company that locks your rate for typically 3 to 10 years. You owe no tax on the interest until you withdraw it, under the annuity rules in IRS Publication 575.

• Example: $100,000 at a guaranteed 5.50%, compounded annually for 5 years, grows to $130,696.
• Interest earned: $30,696, none of it taxed along the way.
• Taken as income instead: about $5,500 a year if you withdraw the interest and leave the principal alone.

Fixed annuity vs CD: does tax deferral win?

Yes, but by less than most pitches suggest unless your tax bracket drops when you withdraw. A CD’s interest is taxed every year, even if you leave it in the account. A MYGA’s interest compounds untaxed until you take it out.

• 5-year CD at 5.50%, 22% bracket: $100,000 grows to about $123,371 after the yearly tax.
• 5-year MYGA at 5.50%, cashed out in the 22% bracket: about $123,943 after tax, roughly $570 ahead.
• When the gap widens: longer terms, a higher bracket while you work and withdrawals in a lower bracket in retirement.

Run your own numbers in the fixed annuity vs CD calculator.

Example: how Linda would use the calculator

Linda is a hypothetical 62-year-old, three years from retirement, whose $150,000 CD just matured. She compares renewing the CD at 5.50% with a 5-year MYGA at the same rate.

• What she enters: $150,000, 5.50%, 5 years and annual compounding.
• What the calculator shows: $196,044 at the end of year five, or $46,044 of guaranteed interest.
• The CD instead: about $185,057 after paying 22% tax on the interest every year.
• After tax in retirement: cashed out in the 12% bracket, the MYGA leaves her about $190,519, roughly $5,460 more than the CD.

Linda splits the money into a $75,000 3-year MYGA and a $75,000 5-year MYGA so part of it frees up sooner. Set the tax bracket above to the one you expect in retirement to see your own version.

Fixed annuity vs fixed index annuity

This calculator models a fixed-rate annuity, where the rate is locked for the full term. A fixed index annuity instead credits interest linked to an index such as the S&P 500, up to a cap or participation rate, with a 0% floor in down years.

• Planning lifetime income: use the income rider calculator.
• Want a paycheck that starts now: use the immediate annuity calculator.

Does compounding frequency matter?

Only a little. Most MYGAs credit interest annually, and some credit monthly. On $100,000 at 5.50% for 5 years, monthly compounding earns about $874 more than annual, so the rate and the tax treatment matter far more.

See the mechanics on their own in the compound interest calculator.

Surrender charges and free withdrawals

The calculator assumes you hold the contract for the full term. Take out more than the free allowance early and you pay a surrender charge.

• Typical charges: about 6% to 9% in year one, falling to 0% by the end of the term.
• Free withdrawals: many MYGAs allow 5% to 10% a year without a charge, but the rules vary by contract.
• Waivers: many waive the charge for nursing home confinement or terminal illness.

Learn how annuity surrender charges work before you commit.

Who should use a fixed annuity calculator?

• CD and money market savers: compare a MYGA with what your bank pays.
• Term shoppers: choose between a 3-, 5- or 7-year guarantee.
• Pre-retirees: size how much guaranteed growth part of your savings can earn before you retire.

Check the best fixed annuity companies before you pick a carrier.