How the Variable Annuity Calculator works
A variable annuity is a tax-deferred insurance and investment contract: your premium and any additional contributions are placed into subaccounts (similar to mutual funds) that rise and fall with the market, and the insurer deducts recurring fees along the way. This calculator projects the accumulation-phase account value using the standard future-value-of-annuity formula, applied to a net return that already accounts for fee drag.
The formula
For an initial premium P, a level annual contribution C, a projection period of n years, and a net annual return r, the projected value is:
FV = P(1 + r)n + C × [((1 + r)n − 1) / r]
The net return r is your expected gross return on the subaccounts minus the annuity's total annual fee rate (r = expected return − fee rate). If r is exactly zero, the second term reduces to C × n — contributions simply add up with no growth. Contributions are assumed to occur once per year, at the end of the year (an ordinary annuity), and fees are assumed to apply at a constant annual rate throughout the period.
Why fees matter so much
Variable annuities typically layer several charges on top of the underlying investment: a mortality and expense (M&E) risk fee that compensates the insurer for death-benefit and lifetime-income guarantees, an administrative or contract fee, and the expense ratios of the underlying subaccounts themselves. Combined, these commonly run in the neighborhood of 1% to 3% of the account value per year. Because fees are deducted every year, they compound against you the same way a positive return compounds for you — a 2% annual fee is not simply "2% off the final number," it is 2% off the growth rate for every year of the projection.
To show that effect directly, this calculator also computes the account value you would reach at your expected return with no fees, and reports the difference as "Cost of fees" — the growth given up to charges over the full period.
Worked example
Take a $50,000 initial premium, $5,000 added each year, a 7% expected annual return, and a 2.25% combined annual fee, projected over 20 years. The net rate is 7% − 2.25% = 4.75%. Plugging into the formula gives a projected account value of roughly $287,500, against total contributions of $150,000 ($50,000 premium plus $5,000 × 20 years) — about $137,500 of net investment growth. At the same 7% return with no fees at all, the account would have grown to roughly $398,500, meaning fees cost this contract on the order of $111,000 of potential growth over the 20 years — a reminder of how much a couple of percentage points in annual charges can compound away over two decades.
What this calculator does not model
This is an accumulation-phase projection only. It does not account for surrender charge schedules (which can apply if you withdraw early, typically declining over 5–9 years), ordinary income tax owed on gains when you withdraw or annuitize, optional living- or death-benefit rider costs, or the actual sequence of market returns — real subaccount performance varies year to year rather than compounding at one steady rate. Treat the projection as a simplified, apples-to-apples comparison tool, not a guarantee or a substitute for your contract's prospectus.