Pension Lump Sum vs. Annuity Calculator
Compare a pension lump-sum offer to lifetime payments.
Enter your values
ⓘ Live results
Results
- Present value of monthly payments
- $279,372.36
- Lump-sum offer
- $250,000.00
- Better option
- Monthly annuity
- Implied annual return of annuity
- 7.21%
Quick answer
The lump sum is a better deal if it exceeds the present value of the monthly annuity payments discounted at your required rate of return.
PV of annuity = payment x [(1 - (1+r)^-n)/r]
How to use the Pension Lump Sum vs. Annuity Calculator
- 1Enter the lump-sum offer and the monthly pension payment it replaces.
- 2Enter how many years you expect to receive payments and your discount rate (your alternative investment return).
- 3Compare the present value of the annuity to the lump sum to see which is worth more today.
Worked example
Using the values the calculator loads with:
Inputs
- Lump-sum offer250000 $
- Monthly pension payment1800 $
- Expected payout years25 years
- Discount rate6 %
Results
- Present value of monthly payments$279,372.36
- Lump-sum offer$250,000.00
- Better optionMonthly annuity
- Implied annual return of annuity7.21%
Frequently asked questions
What discount rate should I use?
Use the return you realistically expect from investing the lump sum, adjusted for the certainty of guaranteed pension income.
Does longevity matter?
Yes — living longer than the expected payout years favors the annuity, since it likely continues for life.
About this calculator
- Built and reviewed by James Whitfield · How we build and test calculators
- Report an error
Results are estimates for general information. For medical, legal, structural or financial decisions, confirm with a qualified professional.