How is the pension valued?

Each monthly payment, grown by the cost-of-living increase, is discounted back to today at the return you could earn. The sum is the pension’s present value.

What is the breakeven return?

The annual return at which the lump sum and the pension have equal present value. If you realistically expect to earn more, the lump sum comes out ahead.

What other factors matter?

Longevity, health, survivor benefits, the pension plan’s financial strength, PBGC protection, taxes and your comfort with investment risk.

How many years should I enter?

Use your life expectancy from retirement age. Try a longer period too, since outliving your savings is the key risk a pension protects against.

Yes. Everything is calculated in your browser.

Pension vs Lump Sum Evaluator

Compare a monthly pension with a lump-sum offer using present value, cost-of-living increases and the breakeven investment return.

100% free
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Monthly pension ($)

Pension cost-of-living increase (%/yr)

Lump-sum offer ($)

Years you expect to collect

Return you could earn on the lump sum (%)

Present value of pension

$432,422.57

Lump-sum offer

$400,000.00

Pension value − lump sum

$32,422.57

Monthly income the lump sum could pay

$2,312.55

Breakeven return

5.83%

Verdict

At a 5% return the pension is worth more. You would need to earn over 5.83% a year on the lump sum to match it.

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About Pension vs Lump Sum Evaluator

Deciding between a pension and a lump sum? Enter the monthly pension, any annual cost-of-living adjustment, the lump-sum offer, how many years you expect to collect and the return you could earn to compare their present values and find the breakeven return.

How to use Pension vs Lump Sum Evaluator

Enter the monthly pension amount and any annual cost-of-living increase.
Enter the lump-sum offer and how many years you expect to receive payments.
Set the return you could earn to compare present values and see the breakeven return.

Key features

Present value of pension payments
Annual cost-of-living adjustments
Monthly income the lump sum could fund
Breakeven investment return
Runs in your browser

Frequently asked questions

How is the pension valued?: Each monthly payment, grown by the cost-of-living increase, is discounted back to today at the return you could earn. The sum is the pension’s present value.
What is the breakeven return?: The annual return at which the lump sum and the pension have equal present value. If you realistically expect to earn more, the lump sum comes out ahead.
What other factors matter?: Longevity, health, survivor benefits, the pension plan’s financial strength, PBGC protection, taxes and your comfort with investment risk.
How many years should I enter?: Use your life expectancy from retirement age. Try a longer period too, since outliving your savings is the key risk a pension protects against.
Is my data private?: Yes. Everything is calculated in your browser.

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