Online annuity break-even calculator to estimate recovery time or the payout needed for a target break-even using taxes, increases, and payment frequency.
Annuity Break-Even Formula
For a level payout, the simple pre-tax break-even period is the premium divided by the periodic payout. The calculator can also reduce each payment for estimated taxes and increase future payments by a cost-of-living adjustment.
Net Payment_1 = Gross Payment_1 * (1 - Taxable Share * Tax Rate)
When payments grow at periodic rate g, cumulative net payouts after n periods are:
Cumulative Payouts = Net Payment_1 * ((1 + g)^n - 1) / g
Variables:
- Net Payment_1 is the first after-tax periodic payout
- Gross Payment_1 is the first gross periodic payout
- Taxable Share is the portion estimated to be taxable
- Tax Rate is the marginal rate applied to that taxable portion
- g is the payout growth rate per payment period
- n is the number of payouts needed to recover the premium
The break-even point is the first period in which modeled cumulative after-tax payouts equal or exceed the premium paid.
Simple Annuity Break-Even Examples
These level-payment examples ignore taxes and annual increases so the basic cash-recovery relationship is easy to see.
| Premium | Monthly payout | Annual payout | Simple break-even |
|---|---|---|---|
| $100,000 | $700 | $8,400 | 11.9 years |
| $150,000 | $1,000 | $12,000 | 12.5 years |
| $200,000 | $1,200 | $14,400 | 13.9 years |
| $250,000 | $1,500 | $18,000 | 13.9 years |
Example Problems
Example 1: Find the after-tax break-even time.
You pay $200,000 for an annuity that initially pays $1,200 monthly. Sixty percent of each payout is taxable at 22%, and payments rise 2% per year.
The first after-tax payment is about $1,042. Modeling the increases produces a cash break-even in roughly 14 years.
Example 2: Find the payout needed for a target.
You want to recover a $150,000 premium in 12 years with level monthly payouts and no modeled tax reduction.
There are 144 payments, so the required monthly payout is about $1,041.67.
Frequently Asked Questions
Does breaking even mean the annuity was a good investment?
No. Cash break-even only compares cumulative payouts with the premium. It does not account for the time value of money, foregone investment returns, insurer guarantees, death benefits, or longevity protection.
Should I use pre-tax or after-tax payouts?
Use after-tax payouts when you want a household cash-flow break-even. The taxable share can vary because a portion of some nonqualified annuity payments may be treated as return of basis.
What if the annuity pays for life?
The calculator can estimate how long it takes to recover the premium, but the ultimate value of lifetime income depends on how long payments continue and whether survivor or period-certain features apply.
