Pension Calculator
Compare a pension lump sum against lifetime monthly payments by present value.
Inputs
Extend beyond average life expectancy to be conservative.
The return you expect to earn if you invest the lump sum. Higher rates favour the lump sum.
Cost-of-living adjustment applied to monthly benefit each year. Many pensions have 0% COLA.
Fraction of benefit paid to a surviving spouse after your death.
PV of Monthly Stream
$307,908
What the lifetime payments are worth today at your discount rate.
Lump Sum
$250,000
Monthly Stream Premium / (Discount)
$57,908
Positive = monthly stream worth more; negative = lump sum worth more.
Break-Even Age
71.6
Nominal: live past this age and the monthly payments beat the lump sum in raw dollars.
Total Lifetime Payments (Nominal)
$540,000
Payment Horizon
25years
Step by step
Payment horizon
85 − 60
= 25 years (300 months)
Present value of monthly pension stream
PV = $1,800/mo, 5% discount, 25 yrs
= $307,908
Compare to lump sum
$307,908 vs $250,000
= Monthly stream worth $57,908 MORE
The monthly pension is worth more at this discount rate and life expectancy.
Break-even age (nominal payments only)
$250,000 ÷ $1,800/mo
= Age 71.6 (11.6 years)
How it works
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
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.