Pension Calculator
Compare a pension lump sum against monthly income — enter the income you want, the return you can earn and the years to see the lump sum needed today and the total it pays.
What is a pension calculator?
A pension calculator compares the two ways you can receive retirement money — a fixed monthly income or a single lump sum. In the US, many defined-benefit plans and cash-balance plans let you choose at retirement, and a lump-sum versus income decision hinges on the rate you can earn and how long you need the money. Enter the monthly income you want, the annual return you expect and the number of years, and it works out the present value — the lump sum you would need today to fund that income.
It also shows the total income paid out over the whole period, so you can compare the guaranteed stream against what investing the lump sum might earn. The math runs in your browser, so results are instant and private.
How to use
- Enter the monthly income you want in retirement.
- Set the annual return rate you believe you can earn on a lump sum.
- Enter how many years the income needs to last.
- Click Calculate Pension to see the lump sum needed and the total income it pays.
How the lump sum is calculated
Lump sum = M × [1 − (1 + r/12)^(−12t)] / (r/12) M = monthly income, r = annual rate, t = years
This is the present value of a fixed monthly annuity: it tells you how much money, invested at your assumed rate, would pay out your exact monthly income for the exact number of years.
Example
With the defaults — $2,500 a month, 6% annual return and 25 years — click Calculate Pension. The lump sum needed today is $388,017.16, and the total income paid over the period is $750,000. In other words, a $388,017 lump sum invested at 6% pays $2,500 every month for 25 years. Raise the rate or shorten the years and the lump sum drops.
Common use cases
- Pension buyout decision: decide whether to take the monthly pension or roll the lump sum into an IRA.
- Retirement income planning: size the lump sum you need to produce a target monthly income.
- Annuity comparison: evaluate whether a guaranteed income stream beats investing on your own.
Pro tips
- Use a conservative rate: an optimistic rate inflates what a lump sum can pay, so err on the low side.
- Think about lifespan: guaranteed lifetime income beats a fixed term if you live longer than average.
- Inflation is the risk: a fixed income loses buying power, so a cost-of-living adjustment matters.
FAQ
What is a pension calculator?
A tool that compares a pension as a fixed monthly income against the equivalent lump sum, or turns a desired monthly income into the lump sum you need to fund it.
Should I take the lump sum or monthly pension?
It depends on your rate of return, health, other guaranteed income and how long you expect to live. This calculator shows the lump sum that funds a given monthly income, which is the core math behind the choice.
How is the lump sum calculated?
The lump sum is the present value of a monthly annuity: Lump sum = M × [1 − (1+r/12)^(−12t)] / (r/12), where M is monthly income, r the annual rate and t the years.
What return rate should I use?
Use a rate you believe you can actually earn on the lump sum. A 5–6% assumption is common for a balanced portfolio; higher rates inflate the income a lump sum can produce.
Does this account for inflation?
No. This calculator uses fixed dollars, so the monthly income is a constant amount. To keep pace with inflation you would need a higher rate or a cost-of-living adjustment.
Is my pension taxable?
Pension income is generally taxable as ordinary income in the US. The tax treatment depends on your state and how the plan was funded, so factor tax in before comparing.
How long should I plan the income period?
Many people plan for 20–30 years of retirement. If you want income for life, an annuity or pension plan typically guarantees it regardless of the period.
What if I take the lump sum and put it in the market?
If you can earn your assumed rate of return, investing the lump sum can produce the same monthly income for the same period — the risk is that market returns fall short or are volatile.
What is the difference between a pension and an annuity?
A pension is typically a defined-benefit retirement plan your employer funds. An annuity is an insurance product you buy, often with a pension lump sum, to create guaranteed income.
Is this pension calculator free?
Yes. It runs entirely in your browser and no data is uploaded anywhere.
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