Pension Lump Sum vs Annuity Calculator
Should you take the lump sum or the monthly check? This free pension lump sum vs annuity calculator converts your monthly pension benefit into its present-value lump sum, so you can compare the two offers on equal footing. Enter your benefit, age, and discount rate to get an instant estimate.
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Enter your numbers to compare the lump sum and the annuity.
How to use this calculator
Enter your monthly pension benefit and current age, then pick a discount rate — the annual return you assume you could earn if you took the lump sum and invested it. The payment years field defaults to 85 minus your age (a rough planning horizon); adjust it to match your own life-expectancy estimate, and set payments per year to 12 for monthly checks.
Results update instantly as you type. The headline number is the present-value lump sum — the fair one-time payment equivalent of all those future checks at your chosen discount rate. Compare it against any lump-sum offer from your plan: if their offer is higher than the calculated present value, the lump sum side wins on pure math.
Also shown is the total nominal payments figure — what the checks add up to with no discounting. The break-even note below tells you the tipping point: collect payments for fewer years than the horizon and the lump sum was the better deal; live past it and the annuity pays out more.
How it works
The present value is the annuity-immediate factor times the benefit: (1 − (1 + i)^−n) / i × payment, where i is the discount rate per period (annual rate divided by payments per year) and n is the total number of payments. Each future payment is discounted because a dollar received today can be invested — later payments count for less than earlier ones.
For the sample on this page — $2,000 per month, 6% annual discount, 20 years — the monthly rate is 0.5%, there are 240 payments, the factor is about 139.58, and the present value is roughly $279,162, versus $480,000 of nominal payments. The break-even horizon is the full payment term: collect all 20 years and the two options are equivalent at the 6% rate.
Assumptions (estimates): payments arrive at the end of each period (annuity-immediate); amounts are fixed nominal dollars with no COLA; no taxes, fees, survivor benefits, or mortality tables modeled. Real employer lump sums often use IRS segment rates and mortality tables, so this is a planning estimate for general information — not financial advice.
Frequently asked questions
How do you calculate the present value of a pension annuity?
Multiply the monthly benefit by the annuity-immediate factor (1 - (1 + i)^-n) / i, where i is the monthly discount rate (annual rate divided by 12) and n is the total number of payments. For example, a $2,000 monthly benefit at a 6% discount rate over 20 years (240 payments) has a factor of about 139.58, giving a present-value lump sum of roughly $279,162. The calculation treats each payment as arriving at the end of the month.
Should I take the lump sum or the monthly pension payments?
It depends on your health, other income, and the return you could earn by investing the lump sum. Roughly speaking, if you can safely earn more than the discount rate used here, the lump sum may come out ahead; if you expect a long life and prefer guaranteed income, the monthly payments insure you against outliving your money. This is a planning estimate, not financial advice — always check your plan's specific terms.
What discount rate should I use in a pension lump sum calculation?
If your pension plan offers a lump sum, use the interest rate the plan itself uses — it is usually stated in your benefit letter. For a what-if estimate, 5% to 6% is a common range reflecting long-term safe returns. A higher discount rate lowers the lump sum and a lower rate raises it, so it is worth testing a couple of rates.
Does this calculator include taxes, COLA, or survivor benefits?
No. It assumes fixed nominal dollars with no cost-of-living adjustments, no taxes, and no survivor or death-benefit provisions. Real pension lump sums are often computed with IRS segment rates and mortality tables that this simplified tool does not model, so treat the result as an estimate.