Pension Calculator
Compare a pension lump-sum offer against the lifetime annuity payment to decide which is better given your age, health and investment expectations.
How to use the Pension Calculator
- Enter your inputs into the Pension Calculator above.
- Results update instantly as you type — no submit button needed.
- Adjust any value to see how the result changes in real time.
The pension comparison math
PV of annuity = PMT × [(1 − (1 + r)^−n) / r]
Calculate the present value of the annuity stream at your assumed return rate r over expected payout years n. Compare to the lump sum offered. If the present value exceeds the lump sum, the annuity is the better deal at that rate assumption.
Worked example
A 65-year-old offered $400,000 lump sum or $2,800/month for life. Life expectancy 20 years, assumed 5% return: PV of annuity = 2,800 × [(1 − 1.05^−20)/0.05]·12 ≈ $419,000. The annuity is worth slightly more here, but a longer life or lower return widens the gap in its favor.
Frequently asked questions
Is the lump sum or annuity usually better?
It depends on health, other income and risk preference. Lump sums offer flexibility and investment upside; annuities offer longevity insurance — guaranteed income that cannot be outlived.
Are pension payments inflation-adjusted?
Most private pensions pay a fixed nominal amount that loses purchasing power over time. Some government and union pensions include cost-of-living adjustments (COLAs).
What about pension survivor benefits?
Most pensions offer a joint-and-survivor option where a reduced payment continues for a surviving spouse. Compare a 50% or 75% joint-survivor stream against the single-life option.