Pension Lump Sum vs. Annuity Calculator
Compare a pension lump-sum offer to lifetime payments.
Enter your values
Enter the lump-sum offer in $.
Enter the monthly pension payment in $.
Enter the expected payout years in years.
Enter the discount rate in %.
Results update instantly as you type — no submit needed. Your values are remembered on this device, and the shareable link reopens the calculator with exactly these numbers.
- Present value of monthly payments
- $279,372.36
- Lump-sum offer
- $250,000.00
- Better option
- Monthly annuity
- Implied annual return of annuity
- 7.21%
Quick answer
The lump sum is a better deal if it exceeds the present value of the monthly annuity payments discounted at your required rate of return.
PV of annuity = payment x [(1 - (1+r)^-n)/r]
At a glance
| What it does | Compare a pension lump-sum offer to lifetime payments. |
|---|---|
| Category | Finance |
| Inputs needed | Lump-sum offer, Monthly pension payment, Expected payout years, Discount rate |
| Main output | Present value of monthly payments |
| Formula | PV of annuity = payment x [(1 - (1+r)^-n)/r] |
| Cost | Free — no sign-up, no download |
How to use the Pension Lump Sum vs. Annuity Calculator
- 1Enter the lump-sum offer and the monthly pension payment it replaces.
- 2Enter how many years you expect to receive payments and your discount rate (your alternative investment return).
- 3Compare the present value of the annuity to the lump sum to see which is worth more today.
Inputs explained
- Lump-sum offer($)
- Enter the lump-sum offer in $.
- Monthly pension payment($)
- Enter the monthly pension payment in $.
- Expected payout years(years)
- Enter the expected payout years in years.
- Discount rate(%)
- Enter the discount rate in %.
Worked example
Using the values the calculator loads with:
Inputs
- Lump-sum offer250000 $
- Monthly pension payment1800 $
- Expected payout years25 years
- Discount rate6 %
Results
- Present value of monthly payments$279,372.36
- Lump-sum offer$250,000.00
- Better optionMonthly annuity
- Implied annual return of annuity7.21%
Frequently asked questions
What discount rate should I use?
Use the return you realistically expect from investing the lump sum, adjusted for the certainty of guaranteed pension income.
Does longevity matter?
Yes — living longer than the expected payout years favors the annuity, since it likely continues for life.
What do I need to enter into the Pension Lump Sum vs. Annuity Calculator?
Just 4 values: lump-sum offer, monthly pension payment, expected payout years, discount rate. Every field starts with a realistic example, so you can change one number at a time and watch the result update instantly.
How does the Pension Lump Sum vs. Annuity Calculator work out the answer?
The lump sum is a better deal if it exceeds the present value of the monthly annuity payments discounted at your required rate of return. It applies the formula PV of annuity = payment x [(1 - (1+r)^-n)/r] and shows the working so you can check each step by hand.
Is the Pension Lump Sum vs. Annuity Calculator free, and do I need an account?
It is completely free with no sign-up, no download and no usage limit. Everything is calculated in your browser, so the numbers you type never leave your device.
Results are estimates for general information. For medical, legal, structural or financial decisions, confirm with a qualified professional.