How it works
The present value of the payments is what they're worth today at your assumed return. If it's above the lump-sum offer, the payments win on paper; if below, the cash does.
Who this is for
Anyone directly comparing a specific lump-sum number against a specific monthly-payment number — the exact question that comes up with pension buyouts, structured settlements, and annuity offers.
Worked example
With a $250,000 lump-sum offer against $1,500 a month for 20 years at a 5% discount rate, the payments are worth about $227,250 today — roughly $22,750 less than the cash offer. On these assumptions, the lump sum comes out ahead; a lower discount rate or a longer payment term would narrow or reverse that gap.
Frequently asked questions
Which number should win my decision? The higher present value is the mathematically stronger deal, but guaranteed monthly income also has a security value the math alone doesn't price in.
What if I don't know my discount rate? Use your realistic expected investment return — try a couple of different rates to see how sensitive the answer is.
Does this factor in taxes? No — both options are generally taxable, and a lump sum can trigger a bigger one-time bill; see the tax calculator.