Variable Annuity Calculator
Variable annuities can grow with the market, and their fees quietly eat into that growth every single year. Enter your numbers to see the real projected balance, not just the optimistic one.
Quick answer: A variable annuity's projected balance depends on your starting amount, contributions, expected return, and annual fees, which commonly total 2.5% to 3% per year. That fee drag compounds against you the same way returns compound for you. Enter your own numbers below for an exact projection.
Your projection will appear here.
What is a variable annuity?
A variable annuity is a long-term, tax-deferred insurance and investment product. Rather than earning a fixed guaranteed interest rate, your contributions are invested in subaccounts that behave similarly to mutual funds, so your account's value fluctuates with the performance of the markets those subaccounts track. You don't get a tax deduction for contributing, but you owe no tax on any growth until you begin withdrawing, a structure known as tax-deferred growth.
A variable annuity contract has two phases. During the accumulation phase, your balance grows through contributions plus investment returns, minus ongoing fees. During the payout, or annuitization, phase, you begin drawing money out, either as a lump sum or as a stream of periodic payments. This calculator focuses on projecting your balance through the accumulation phase, up to the point you plan to start withdrawing.
Variable annuity vs fixed annuity
A fixed annuity guarantees a set interest rate and a predictable payment for the agreed term, functioning much like a CD wrapped in an insurance contract. A variable annuity instead ties your return directly to the performance of the investment subaccounts you select. That trade-off cuts both ways: a variable annuity can grow considerably faster than a fixed annuity during strong market years, but it can also lose value during weak ones, since there is no guaranteed floor on the investment return itself.
How this calculator's projection works
The calculator treats your annuity as a starting balance plus a series of regular contributions, growing at a net annual rate equal to your expected return minus your annual fee percentage. That net rate is what actually compounds, period after period, whether you're contributing monthly or annually:
Net rate per period = (Expected return โ Annual fee) รท contributions per year
Future value = Starting balance ร (1 + net rate)^periods + Contribution ร [((1 + net rate)^periods โ 1) รท net rate]
This mirrors the same underlying future value of annuity logic used across standard annuity math, with one key adjustment: the fee percentage is subtracted from your return before anything compounds, exactly like it works in a real variable annuity contract.
Why a 2.5% fee costs far more than it sounds like it should
Variable annuities carry some of the highest fee structures of any common retirement product, typically totaling between 2.5% and 3% per year once you combine mortality and expense risk charges, ongoing subaccount management fees, and any optional riders. That percentage isn't a one-time cost. It's charged every single year, directly against your balance, and it compounds against you with exactly the same mathematical force that returns compound for you.
A typical 2.5% annual fee costs roughly $20,000 in lost growth compared to a fee-free version of the exact same investment, on this example alone. That gap only widens further the longer the annuity stays invested, which is exactly why fee percentage deserves as much attention as expected return when comparing annuity products.
Surrender charges: the cost of withdrawing early
Insurance companies apply a surrender charge if you withdraw money from a variable annuity before an agreed number of years have passed. The charge is a percentage of the withdrawn amount, and it typically declines each year the contract is held, often starting around 9% in year one and stepping down by roughly one percentage point annually until it reaches zero.
This calculator estimates your surrender charge automatically, based on how many years remain between your current age and your chosen withdrawal age, applied against your projected balance at that point. Exact schedules vary by insurer, so treat this as a reasonable estimate rather than a guarantee tied to any specific contract.
Pros and cons of a variable annuity
The main advantages of a variable annuity include tax-deferred growth, no annual contribution limits tied to income level, higher long-term return potential than a fixed annuity, and in many states, some protection from creditors. The main drawbacks include high ongoing fees, contract terms that vary significantly and can be genuinely complex to compare between insurers, no guaranteed return, and often significant tax owed at withdrawal, since growth is generally taxed as ordinary income rather than at the lower long-term capital gains rate.
Investors in their early-to-mid 50s are often considered well positioned to buy a variable annuity, since they typically still have enough runway before retirement to recover from a market downturn, while remaining close enough to retirement to make real use of the tax-deferred growth before withdrawals begin.
How this fits with other retirement math
A variable annuity is really just a special case of a broader idea: money growing over time at some rate, minus costs, minus taxes. If you want to see that foundational relationship stripped down to its simplest form, without contributions, fees, or insurance-specific mechanics, the Time Value of Money Calculator shows exactly how a single lump sum grows or discounts using the pure compounding formula this calculator builds on.
If you're comparing this variable annuity projection against a simpler, fee-free investment earning a fixed rate with regular contributions, the Future Value of Annuity Calculator is the cleaner side-by-side comparison, since it models the same contribution stream without any fee drag or surrender charge applied, letting you see exactly how much those two factors are really costing you.
Variable Annuity Calculator FAQs
What is a variable annuity?
A variable annuity is a long-term, tax-deferred insurance and investment product. Instead of earning a fixed guaranteed rate, your money is invested in subaccounts that function similarly to mutual funds, so the annuity's value rises and falls with market performance. You don't get a tax deduction on contributions, but you owe no tax on any growth until you actually begin withdrawing money, which is the accumulation phase giving way to the payout phase.
What is the difference between a variable annuity and a fixed annuity?
A fixed annuity guarantees a set interest rate and a predictable payment for the agreed term, similar to a CD with an insurance wrapper. A variable annuity instead ties your return to the performance of the underlying investment subaccounts you choose, meaning your balance can grow faster in strong markets but can also decline in weak ones. Variable annuities trade guaranteed stability for higher return potential.
Why do fees matter so much for a variable annuity?
Variable annuities carry some of the highest fee structures of any common retirement product, commonly totaling between 2.5% and 3% of the contract's value per year once you combine mortality and expense risk charges, subaccount management fees, and any optional riders. That percentage comes directly out of your return every single year, which compounds against you the same way a positive return compounds for you, quietly shrinking your final balance far more than most people expect over a long holding period.
What are surrender charges and how do they work?
A surrender charge is a penalty an insurance company applies if you withdraw money from a variable annuity before an agreed number of years have passed, typically declining a percentage point or two each year. A common schedule might charge 9% in year one, 8% in year two, 7% in year three, and so on, reaching 0% after around seven to ten years. This calculator estimates that charge automatically based on how many years remain before your chosen withdrawal age.
Is the return on a variable annuity guaranteed?
No. Unlike a fixed annuity, a variable annuity's return depends entirely on how its underlying subaccounts perform, so your actual balance can end up meaningfully higher or lower than any single projected average return suggests. This calculator's projection assumes a steady average annual return for simplicity, which is a useful planning estimate but not a guarantee of what will actually happen in real markets.
What is the best age to buy a variable annuity?
Investors in their early-to-mid 50s are generally considered well positioned for a variable annuity, since they typically still have enough time before retirement to ride out a market downturn before needing to withdraw, while also being close enough to retirement to benefit from the tax-deferred growth. Buying much earlier or much later can shift that balance of risk and benefit in either direction.
What are the main pros and cons of a variable annuity?
The main advantages include tax-deferred growth, no annual contribution limits tied to income, and in many states, some protection from creditors. The main drawbacks include high ongoing fees, a complex contract structure that varies significantly by insurer, a lack of any guaranteed return, and potentially significant tax owed on withdrawal, since growth is taxed as ordinary income rather than at capital gains rates.
How is this different from the Future Value of Annuity Calculator?
The Future Value of Annuity Calculator projects a stream of regular contributions growing at one consistent, often fixed, rate of return with no fee drag applied. This Variable Annuity Calculator layers in the two things that make a real variable annuity different: an annual fee drag that reduces your net return every year, and an estimated surrender charge if your withdrawal falls inside the contract's early years. If you're modeling a simple fixed-rate investment, the annuity calculator is the cleaner tool. If you're evaluating an actual variable annuity product, this one accounts for its real costs.
This tool is for educational purposes only. Always verify important results with a qualified professional.
