A number of factors will determine whether an annuity is likely to be a suitable component of your retirement income. But perhaps chief among them is the answer to a simple question: How much income will an annuity pay me?

With UK annuity rates currently at especially high levels (up almost 50% in 2021 according to Money Week), looking into annuities could be a wise choice for anyone approaching retirement with a suitable pension pot.

What is an annuity?

An annuity is a type of insurance product that lets you turn money saved in a ‘defined contribution’ personal pension or company pension scheme into regular income. You have the option of setting up an annuity for life or for a fixed term.

Part of the attraction of an annuity is that the income it pays is not affected by what happens to interest rates or the stock market. Your annuity provider will offer you a rate at the outset, and that rate will be fixed with most types of annuities.

It’s that certainty and peace of mind that sets annuities apart from the other main retirement income option – pension drawdown.

Drawdown certainly has its advantages, but people who are risk-averse may wish to avoid the possibility of falling stock markets affecting the size of the pension fund and income.

What is an annuity calculator?

Annuity providers, advisers, and brokers understand that consumers may wish to get an initial indication of how much income they might expect from an annuity. Many companies therefore provide an online calculator facility.

These calculators typically ask for a small amount of information in order to present a quick result to the user.

As a bare minimum, they will for the size of the user’s pension pot and their age. Some will also ask for the approximate retirement date, as age alone is not always an indicator of when someone will want to access their retirement savings.

The calculator will then use data about current annuity rates to provide an indication of how much income you could get from your pension savings with an annuity. Some will show one result, while others will present a range of results from multiple providers and/or show scenarios with both lifetime and fixed-term annuities.

The most complex calculators will also ask for information about your health and lifestyle (smoking, drinking, etc.) as these factors also affect retirement income from some annuity providers.

A higher level of regular income may be available on account of poor health or lifestyle, due to the effect this can have on life expectancy.

Whatever calculator you use, it is likely that the actual income you can receive from an annuity will differ at least slightly from the online calculator result. That’s because an annuity adviser or broker will ask for more information about your circumstances than most online calculators request.

They will also be able to produce quotations for annuities of different types and feature different product options, such as death benefits.

Companies like leading UK annuity broker Retirement Line offer a free annuity calculator for consumers who are interested in an annuity for their retirement income. They also offer a service where they take additional information and search for competitive quotes from some or all of the country’s annuity providers.