The future value of an annuity is the total dollar amount a series of equal payments turns into by a set date, once every bit of compound interest along the way is added in.
What is the future value of an annuity?
Future value answers a plain question: if you put in (or receive) the same amount every period, what will that stream of payments add up to once compounding has done its work? Rather than just totaling the raw deposits, future value credits every dollar with the interest it earned for however long it sat in the account.
How the future value of an annuity works
Each payment starts its own clock. The first deposit earns interest for the entire term, the second deposit earns interest for a little less time, and so on down to the final payment, which barely has time to grow at all before the term ends. Add every payment together with whatever interest it individually picked up, and the total is the future value.
Here is a hypothetical example: deposit $5,000 a year for 20 years at a hypothetical 5% and the balance grows to roughly $165,000, even though you only put in $100,000 of your own money. The remaining $65,000 came from compounding alone. Our compound interest calculator will run this math for any deposit, rate and term you enter.
Timing changes the outcome too. Payments made at the end of each period form an "ordinary annuity," while payments made at the start form an "annuity due." Because an annuity due payment starts compounding a period sooner, it produces a slightly larger future value for the same rate and term.
Future value vs. present value
Future value and present value are mirror images of each other. Future value projects a stream of payments forward to see what it becomes. Present value pulls a stream of future payments back to what they are worth today. Both calculations lean on the same discount rate, just pointed in opposite directions. During the accumulation years of a MYGA, future value is the number your contract is quietly building toward.
Frequently asked questions
What does future value of an annuity mean?
It is the total a stream of equal payments will have grown to by a chosen date, after all the compound interest those payments earned is added on top.
How is the future value calculated?
Every payment starts earning interest from the day it is made, so payments made earlier in the schedule have more time to compound than payments made later. Sum each payment plus the interest it collected and you have the future value.
What separates future value from present value?
Future value pushes a stream of payments forward to a future date. Present value pulls the same stream backward to today's dollars. Both use the same discount rate, just aimed in opposite directions.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Annuities are not bank deposits, are not FDIC insured and are not guaranteed by any government agency. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, rates and availability vary by state and change over time; the contract and disclosure documents govern.