A lifetime annuity pays until you die, however long that is, so a calculator for one is pricing an open ended promise rather than a fixed schedule of payments. That is why the income it shows is lower than a fixed term calculator would produce from the same pot, and the difference is the cost of removing the risk of living a long time.
What the open ended promise costs
An insurer pricing a lifetime annuity has to fund payments for an unknown number of years, so it prices against expected longevity for someone like you and holds capital against the possibility that you outlive it. A fixed term product knows exactly how many payments it owes and returns a maturity value, which is why it can show a higher income for the same money. Comparing the two on income alone therefore compares a guarantee against a schedule and concludes, wrongly, that the guarantee is poor value.
The shape choices that move it most
Four decisions change the figure more than the choice of insurer does. A joint life basis continues the income to a surviving partner and starts lower. An escalating income rises each year and starts materially below a level one, sometimes by a wide margin. A guarantee period pays for a minimum number of years regardless, and costs something. And the age at purchase runs through everything, because fewer expected payments mean a higher yearly income. A calculator that does not let you set all four is not really pricing a lifetime annuity.
Level income and the inflation question
A level lifetime annuity pays the same cash amount for life, which means its purchasing power falls every year that prices rise. Over a retirement lasting decades that erosion is substantial, and it is the most commonly underestimated feature of the product. An escalating annuity addresses it by starting lower and rising, which many people reject at the point of sale because the opening figure looks poor. Running both in a calculator and comparing the total received over a long horizon rather than the first year is the honest way to look at that choice.
The limits of the estimate
The output is gross of tax and indicative rather than contractual. Real pricing depends on the insurer, the day, and your health disclosure, and enhanced terms for a qualifying condition can lift the figure well above a standard quotation. This site does not publish rates, does not advise on whether a lifetime annuity suits you and does not recommend an insurer. Where you want real quotations, the enquiry goes to a firm authorised to advise and arrange.
Questions people ask about lifetime annuity calculator
Why is a lifetime annuity income lower than a fixed term one?
Because the insurer is funding payments for an unknown period and holding capital against the chance you live a long time, whereas a fixed term product owes a known number of payments and returns a maturity value. The gap is the price of the lifetime guarantee.
Should I choose level or escalating income?
That depends on your other income and how long the annuity is likely to run, which this site cannot assess. A level income buys more today and loses purchasing power every year; an escalating one starts lower and holds its value better. Compare them over a long horizon, not on the first year.
Does a guarantee period reduce the income?
Yes, modestly. A guarantee period commits the insurer to pay for a minimum number of years whether or not you survive them, which is an additional obligation and is priced accordingly. It is often chosen where the alternative of a joint life basis is not needed.
Will my health change the figure?
It can, considerably. An enhanced annuity pays more where medical or lifestyle factors reduce expected life, and insurers differ widely in what they count, which is why real quotations from several providers matter more for people who may qualify.