How it works
This compares both options in today's dollars. The present value is the amount that, invested today at your expected return, would reproduce your monthly pension for life. It also shows the break-even age — the age at which the monthly checks catch up to what the lump sum could have grown to — and what the lump sum itself could grow to if invested.
Who this calculator is for
Anyone weighing a real offer from an employer or pension plan: you've been told you can take a lump sum today, or a monthly check for the rest of your life, and the two numbers on the letter don't obviously tell you which is worth more. This tool turns both options into one apples-to-apples comparison.
Worked example
Using the default numbers above — a 65-year-old expecting to live to 85, a $250,000 lump sum offer, versus a $1,500 monthly pension — the raw math is simple to check: 20 years of $1,500 checks is $1,500 × 12 × 20 = $360,000 in total payments, well above the $250,000 lump sum. But total dollars collected isn't the same as value today — a dollar 15 years from now is worth less than a dollar in your pocket now. The present value calculation above discounts every future check back to today's dollars at your expected return, which is the fairer number to compare against the lump sum offer.
Frequently asked questions
Which option is better? There's no universal answer — it depends on your life expectancy, what return you could realistically earn investing the lump sum, and how much you value guaranteed income versus flexibility. Run your own numbers above rather than relying on someone else's rule of thumb.
Does this include taxes? No — both a lump sum and pension income are generally taxable, and a lump sum paid directly to you can trigger a large tax bill. See the pension lump sum tax calculator for that piece.
What discount rate should I use? Try your realistic expected investment return, often 5-7% for a diversified portfolio. Higher assumed returns make the lump sum look better; lower ones favor the guaranteed pension.
What if my pension has a cost-of-living adjustment or survivor benefit? Those add real value the calculator above doesn't capture on its own — see the COLA calculator and survivor benefit calculator.
Is this financial advice? No. This is an educational estimate to help you understand the math before talking to a financial advisor or tax professional about your specific situation.