Compare a pension lump sum against lifetime monthly payments.
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.
PV of level monthly pension
PV = Monthly benefit × (1 − (1 + r)^−n) / r
PV of growing annuity (with COLA)
PV = Monthly benefit × (1 − ((1+g)/(1+r))^n) / (r − g)
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.
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.
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.
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.
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.