Pension vs lump sum calculator
A pension (a life annuity) is a stream of monthly payments for life; a lump sum is a pile of money now. To compare them you need a return, a horizon, and the pension's own increases, if any. This calculator values the pension at the return you expect, finds the return the lump sum would have to earn to be worth the same, and runs the lump sum forward paying the pension's amounts to see when it would be exhausted.
Arithmetic from your own inputs: no statutory data Runs in your browser — nothing you type is sent to this site's servers or to its analytics No sign-up Methodology and data status
- Pension worth today at 5.0%
- $276,460
- Lump sum offered
- $300,000
- Return the lump sum must earn
- 4.45%
- Lump sum paying the pension runs out
- not by 90
| How the comparison is built | |
|---|---|
| Payments from 65 through 90: 312 monthly payments | $624,000 |
| Discounted to age 60 at 5.0% a year (present value) | $276,460 |
| The lump sum is worth more than the pension at that return | $23,540 |
| Invest $300,000 at 5.0% and pay yourself the pension: balance at 90 | $106,824 |
| If you live to | Pension worth today | Return the lump sum must earn |
|---|---|---|
| 75 | $159,747 | 0.00% |
| 80 | $208,430 | 1.94% |
| 85 | $246,573 | 3.54% |
| 90 | $276,460 | 4.45% |
| 95 | $299,877 | 5.00% |
| 100 | $318,225 | 5.35% |
Payments are valued to the end of the age you enter, as if you were certain to live that long; a pension also carries the insurer's or plan's credit risk, and a lump sum carries the risk of poor returns and of outliving it. Survivor benefits, taxes and the PBGC guarantee are not modeled. Not advice: a decision this size deserves a fee-only adviser who can see the plan document.
How the comparison works
- Present value. Every monthly payment from the start age through the end of the horizon age, paid at the end of its month, is discounted back to your age now at the monthly equivalent of the expected return — (1 + r)1/12 − 1, not r ÷ 12. A pension with a cost-of-living increase has each year's payments raised by it on the anniversary of the start; a pension already in payment is valued at its current amount.
- Required return. The rate at which the present value equals the lump sum — the return you would have to earn, every year, for the lump sum to buy the same income. If the lump sum is larger than the undiscounted total, no positive return is needed; if it is very small, no plausible return will do.
- Lump sum paying the pension. Invest the lump sum at the expected return and withdraw the pension's amount each month: the age at which it runs out, or the balance left at the horizon.
What the number does not capture
- Longevity. The pension pays as long as you live; the table by horizon shows how much its value depends on that. A pension is insurance against living long, which the lump sum does not provide.
- Survivor options. A joint-and-survivor pension continues, in part or in full, to a spouse; the single-life amount is higher. Enter the option you are actually offered.
- Credit risk and the PBGC. Most private-sector defined benefit pensions are insured by the Pension Benefit Guaranty Corporation up to a legal maximum (for plans failing in 2026, $7,789.77 a month at 65 as a single-life annuity, less at younger ages); government plans are outside the PBGC, and church plans and very small professional-practice plans are usually exempt.
- Taxes. Both are taxed as ordinary income when received, apart from any after-tax contributions you made; a lump sum rolled directly into an IRA is not taxed until withdrawn, and one taken in cash before 59½ can also owe the 10% additional tax (a 72(t) series is one way around it). The withdrawal calculator models the drawdown with taxes.
- Inflation. A fixed pension loses purchasing power every year; enter 0 for its increase and use a nominal return, or use a real return with the pension's increase set to the amount it beats inflation by.
This is arithmetic, not advice. For a decision of this size, a fee-only adviser who can read the plan's actuarial assumptions is worth the fee.
Statements on this page and their sources
Each sentence below states a fact the calculator does not compute. It was checked against the document named, most recently on 2026-09-10; the date is when to re-read it.
- Most private-sector defined benefit pensions are insured by the PBGC up to a legal maximum (for plans failing in 2026, $7,789.77 a month at 65 as a single-life annuity); government plans are outside the PBGC, and church plans and very small professional-practice plans are usually exempt.
- PBGC, 'PBGC insurance coverage' —
PBGC insures most private-sector (i.e., non-governmental) defined benefit pension plans.
- PBGC, 'Maximum monthly guarantee tables'
- PBGC, 'PBGC insurance coverage' —
- Both are taxed as ordinary income when received, apart from after-tax contributions; a lump sum rolled directly into an IRA is not taxed until withdrawn, and one taken in cash before 59½ can also owe the 10% additional tax.
- 26 U.S.C. §402(a), (c)(1) — distributions from a qualified trust taxable under §72; a direct rollover is not included in income
- 26 U.S.C. §408(d)(1) — IRA distributions included in gross income
- 26 U.S.C. §72(t)(1) — 10% additional tax on early distributions
- A joint-and-survivor pension continues, in part or in full, to a spouse; the single-life amount is higher. Checked 2026-09-10.