Pension Calculator
Compare a pension lump sum offer against monthly payments to see which is worth more in today's dollars.
Return you could earn investing elsewhere
Better option
Monthly Pension
What Your Result Means
This converts the monthly pension offer into its present value - what that stream of future payments is worth today - so you can compare it apples-to-apples against the lump sum offer.
How It Is Calculated
PV of Monthly Pension = Payment × [(1 - (1 + r)^-n) / r]
Worked Example
A $250,000 lump sum vs. $1,800/month for 25 years, discounted at 5%, shows the monthly pension is worth about $307,000 in present value - roughly $57,000 more than the lump sum.
Important Assumptions
- The discount rate should reflect the return you'd realistically expect if you invested the lump sum instead.
- Doesn't account for taxes, inflation adjustments to pension payments, or survivor benefits - consult a financial advisor for a full comparison.
Frequently Asked Questions
- What discount rate should I use?
- A common approach is to use the return you could realistically expect from investing the lump sum, such as a conservative diversified portfolio return (often 4-7%).
- Are there other factors besides the math?
- Yes - consider your health and life expectancy, whether the pension offers survivor benefits for a spouse, your other income sources, and your comfort with managing investments yourself.
Related Calculators
Methodology
This calculator uses standard present-value-of-annuity formulas. See our methodology page for details.
This calculator provides estimates for educational purposes only. Actual rates, taxes, insurance, fees, and lender terms may differ. It does not constitute financial advice - consult a qualified financial professional before making financial decisions.