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● Free tool · retirement

Pension lump sum vs monthly payments calculator

Offered a lump sum instead of your pension? See what the monthly pension is worth today at the return you could earn, the return it pays you if you live to each age, the break-even age, and how long the lump sum would last paying yourself the same income.

✓ TestedSame calculation as the tested spreadsheet
Better at your return and plan age–
If you live toPension's value todayPension − lump sumPension's return

Payments at the end of each month after the start age, raised every 12 payments by the cost-of-living rate. Value today = each payment ÷ (1 + monthly rate)^months, monthly rate = (1 + yearly return)^(1/12) − 1. The pension's return is the yearly rate at which the lump sum you give up equals the payments you'd get up to that age. Break-even age: when the payments' value today first reaches the lump sum, which is also when the lump sum would run out paying yourself the same amount. Taxes, survivor options and plan guarantees aren't included.

How it works

Each monthly payment is discounted back to today at the return you could earn on the lump sum; their total, up to the age you plan to, is what the pension is worth today. If it's more than the lump sum, the pension is the better deal at that return and lifespan. The return the pension pays is the rate at which the two are equal. In the example, $2,000 a month from 65 against $300,000 at 62 is worth $298,834 at 5% to age 90, so the two are within $1,166; the pension pays 1.77% a year if you live to 80 and 6.00% if you live to 100. More in the pension lump sum guide.

Worked examples