Pension Calculator
Compare a pension lump sum against lifetime monthly payments.
About Pension Calculator
The pension decision is a present-value problem. The calculator discounts the monthly payment stream back to today using your chosen opportunity cost (the rate you'd earn investing the lump sum). A higher discount rate tilts the math toward the lump sum; living longer tilts it toward the monthly payments. COLA provisions increase the value of the stream, and a survivor benefit adds further expected value if your plan continues to pay a spouse.
Formulas
PV of level monthly pension
PV = Monthly benefit × (1 − (1 + r)^−n) / r
- PMT
- Monthly pension benefit
- r
- Monthly discount rate (annual ÷ 12)
- n
- Number of months (years × 12)
PV of growing annuity (with COLA)
PV = Monthly benefit × (1 − ((1+g)/(1+r))^n) / (r − g)
- g
- Monthly COLA rate
- r
- Monthly discount rate
- n
- Months of payments
Worked example
With the default values below, Pension Calculator returns PV of Monthly Stream of $307,908. Change any input above and every figure here is recalculated in your browser.
Inputs used
- Lump Sum Offerminimum 0 $
- 250,000 $
- Monthly Lifetime Benefitminimum 0 $
- 1,800 $
- Current Ageaccepts 40–85
- 60
- Life Expectancyaccepts 60–110
- 85
- Discount Rate (Opportunity Cost)accepts 0–15
- 5
- Annual COLA (%)accepts 0–5
- 0
- Survivor Benefit (%)accepts 0–100
- 0
Results
- PV of Monthly StreamWhat the lifetime payments are worth today at your discount rate.
- $307,908
- Lump Sum
- $250,000
- Monthly Stream Premium / (Discount)Positive = monthly stream worth more; negative = lump sum worth more.
- $57,908
- Break-Even AgeNominal: live past this age and the monthly payments beat the lump sum in raw dollars.
- 71.6
- Total Lifetime Payments (Nominal)
- $540,000
- Payment Horizon
- 25 years
Step by step
- 1Payment horizon= 25 years (300 months)
- 2Present value of monthly pension stream= $307,908
- 3Compare to lump sum= Monthly stream worth $57,908 MOREThe monthly pension is worth more at this discount rate and life expectancy.
- 4Break-even age (nominal payments only)= Age 71.6 (11.6 years)
Assumptions and limits
- The result is derived only from the 7 inputs listed above. Anything not among them is not part of the calculation.
- In particular, this calculator does not take inflation into account.
- Figures are rounded for display to 1 decimal place, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
- This calculator is for educational comparison only. Pension benefits, tax implications and survivor options vary by plan. Consult your plan administrator and a financial advisor.
- This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.
How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.
This calculator is for educational comparison only. Pension benefits, tax implications and survivor options vary by plan. Consult your plan administrator and a financial advisor.
Frequently Asked Questions
What discount rate should I use?
Use the after-tax return you expect to earn investing the lump sum conservatively — typically 4–6%. If you have a guaranteed reinvestment opportunity (e.g. a fixed annuity), use that rate. Lower rates favour the monthly pension; higher rates favour the lump sum.
Why does the break-even age use nominal payments?
The break-even shown is the simplest version: total nominal dollars paid equal the lump sum. The present-value comparison is more rigorous because it accounts for the time value of money — a dollar today is worth more than a dollar in 20 years.
What if my pension has a cost-of-living adjustment?
Enter the annual COLA percentage. The calculator switches to the growing annuity formula so the rising payments are properly discounted. Even a modest 2% COLA significantly increases the present value of a long-lived pension.
Should I include the survivor benefit in my decision?
Yes, if you have a spouse who depends on your income. The 100% joint-and-survivor option is valuable insurance; this calculator adds its estimated present value to the monthly-stream total so you can compare apples-to-apples.