Pension Lump Sum vs Annuity Calculator
Take the cash or the monthly pension?
Enter your values
ⓘ Live results
Results
- Present value of the pension
- $374,539.46
- Better option
- Take the lump sum
- Advantage
- $45,460.54
- Implied payout rate
- 6.57%
- Total pension payments to life expectancy
- $690,000.00
- Monthly income the lump sum supports at 4%
- $1,400.00
Quick answer
Compare the pension's implied payout rate (annual income ÷ lump sum) with the income you could safely draw from the cash invested yourself.
Payout rate = annual pension ÷ lump sum offered
How to use the Pension Lump Sum vs Annuity Calculator
- 1Enter the lump sum your plan is offering.
- 2Enter the monthly pension you would give up.
- 3Set a realistic return and life expectancy for the comparison.
Worked example
Using the values the calculator loads with:
Inputs
- Lump sum offered420000 $
- Monthly pension2300 $
- Your age62 yr
- Life expectancy87 yr
- Return you expect on the lump sum5.5 %
- Survivor benefit50 %
Results
- Present value of the pension$374,539.46
- Better optionTake the lump sum
- Advantage$45,460.54
- Implied payout rate6.57%
- Total pension payments to life expectancy$690,000.00
- Monthly income the lump sum supports at 4%$1,400.00
Frequently asked questions
What payout rate is good?
Above roughly 6% the pension is usually hard to beat by investing; below 5% the lump sum often wins, especially if you want to leave an inheritance.
What about inflation?
Most private pensions are not indexed, so their real value falls each year. Reduce the monthly figure or raise your required return to reflect that.
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.