Pension Calculator
Compare a lump sum with lifetime monthly pension payments.
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Enter your numbers to see the result.
This pension calculator helps you choose between a lump sum and a monthly pension. It works out the present value of the pension payments at your expected investment return, the return the pension effectively pays you, the age at which total pension payments overtake the lump sum, and how long the lump sum would last if you withdrew the same monthly amount.
What is a Pension Calculator?
Many defined-benefit pension plans let you choose between a lifetime monthly pension and a one-time lump sum, and some employers make lump-sum buyout offers. The right choice depends on how long you expect to live, the return you could earn, inflation, taxes and whether you value guaranteed income.
The key comparison is the present value of the pension: what the stream of monthly payments is worth today at the return you could earn yourself. If that value is higher than the lump sum, the pension is the better deal on paper. This pension calculator shows that value along with the break-even age and implied return.
How does the Pension Calculator work?
The calculator discounts each monthly pension payment, rising each year by any cost-of-living adjustment, back to the start date at your expected return, up to the planning age. It also searches for the return that makes the pension’s present value equal to the lump sum, counts how long it takes for total payments to exceed the lump sum, and simulates withdrawing the same monthly income from the invested lump sum.
How to use the Pension Calculator step by step
- Choose your currency.
- Enter the lump sum and monthly pension offered.
- Enter the starting age.
- Choose an age to plan to, such as your life expectancy plus a margin.
- Enter any COLA and your expected return.
- Compare the present value, break-even age and implied return.
Pension Calculator example with real numbers
Linda’s employer offers either a $300,000 lump sum or $1,800 a month for life from age 65, with no cost-of-living increase. She thinks she could earn 5% a year investing the lump sum.
| Example input | Value |
|---|---|
| Currency | US dollar ($) |
| Lump sum offered | 300,000 |
| Monthly pension offered | 1,800 |
| Age pension starts | 65 years |
| Plan for payments until age | 85 years |
| Yearly pension increase (COLA) | 0% |
| Return you could earn on the lump sum | 5% |
| Example output | Value |
|---|---|
| Worth more at a 5.00% return | The lump sum |
| Present value of the pension | $275,298 |
| Lump sum | $300,000 |
| Return the pension effectively pays | 3.96% |
| Break-even age (total pension ≥ lump sum) | 78.9 |
| Lump sum would last until age | 88.3 |
| Total pension paid to age 85 | $432,000 |
Over 20 years, the pension calculator values the payments at $275,298 today, so at a 5% return The lump sum is worth more. The pension effectively pays 3.96%, and it overtakes the lump sum at age 78.9.
Key features of this Pension Calculator
- Present value of pension
- Implied return
- Break-even age
- Lump-sum depletion age
- COLA support
Who should use the Pension Calculator?
Who is this Pension Calculator for?
- Retirees with a defined-benefit pension
- Employees offered a pension buyout
- Government and PSU retirees choosing commutation
- Financial planners
Practical use cases
- Evaluating a lump-sum offer
- Comparing with an annuity quote
- Planning retirement income
- Discussing options with a spouse
Key benefits
- Balanced: four ways to compare.
- Realistic: COLA included.
- Clear: one verdict at your return.
- Private: runs in your browser.
Tips for better results
- Plan for living longer than average.
- Compare the implied return with safe investments, not stock market averages.
- Check survivor benefits for your spouse.
- Consider taxes on a lump sum and rollover options.
Common mistakes to avoid
- Assuming high investment returns.
- Ignoring longevity risk.
- Forgetting inflation when there is no COLA.
- Overlooking survivor benefits.
Limitations of this Pension Calculator
- Taxes are not modelled.
- Returns are constant.
- Survivor and partial lump-sum options are not included.
Pension Calculator vs other ways to calculate
| Option | Advantages | Risks |
|---|---|---|
| Monthly pension | Guaranteed income for life | Inflation, no inheritance |
| Lump sum | Control, flexibility, inheritance | Market risk, running out |
| Partial lump sum | Mix of both | Depends on plan rules |
To turn a lump sum into a payout, use the annuity calculator. For US retirement withdrawals, try the RMD calculator.
Privacy and data handling
This Pension Calculator runs entirely in your browser. The numbers you type are not sent to Qorico or stored on any server, and nothing is saved after you close the page. The Copy and Download buttons create the result on your own device. If the page has analytics turned on, it may count that a calculation happened, but it does not record the values you entered.
Pension Calculator FAQs
Should I take a lump sum or a monthly pension?
Compare the pension’s present value at a realistic return with the lump sum, and consider your health, other income and need for guaranteed income.
What is the break-even age?
The age at which total pension payments received exceed the lump sum.
What is the implied return?
The yearly return the pension effectively pays, given the lump sum offered.
Does inflation matter?
Yes. Without a cost-of-living increase, the pension’s buying power falls over time.
Can I roll over a lump sum?
In the US, many lump sums can be rolled into an IRA to defer tax.
What if I die early?
A lump sum can pass to heirs; a pension may stop or pay a reduced survivor benefit.
Related tools
Sources and references
We checked the method and the current figures used in this Pension Calculator against these official and primary sources:
- PBGC: Lump sum or annuity?
- U.S. Department of Labor: Retirement plans
- Social Security Administration
- PFRDA: Pension Fund Regulatory and Development Authority
Written and reviewed by the Qorico Team
