Pension vs Lump Sum Calculator
A pension offer usually comes with a lump-sum buyout option. Enter the monthly payment, how long you expect to collect it, and a discount rate to compare the pension’s present value with the lump sum on the table.
This comparison ignores taxes, inflation, and survivor benefits — all three can swing a real decision. It is a present-value starting point, not a recommendation.
Estimates only — not financial advice. This calculator gives approximate figures for planning. It is not financial, tax, or legal advice; check with a qualified professional before making decisions.
How the pension vs lump sum calculator works
Money today is worth more than money later — that is the discount rate’s job. This calculator converts your stream of monthly pension checks into a single present value: what that whole stream is worth in today’s dollars at your discount rate. Then it puts that number next to the lump sum offer so you compare like with like.
The discount rate is your expected return if you invested the lump sum yourself — 4–6% is a common conservative pick. A higher rate shrinks the pension’s present value (future checks are worth less); a lower rate makes the pension look better. Try both.
PV = PMT × (1 − (1+r/12)−12n) / (r/12) · higher discount rate → lower PV
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Pension vs lump sum calculator FAQ
What is the present value of a pension?
The single lump sum today that is economically equivalent to the whole stream of future monthly checks, given a discount rate. It lets you compare a pension directly against a lump-sum buyout offer.
What discount rate should I use?
Your realistic expected return if you invested the lump sum — often 4–6% for a conservative mix. Use a higher rate if you would invest aggressively, lower if the money would sit in cash.
Does the lump sum get taxed differently?
Often, yes. Pension checks are taxed as ordinary income when received; a lump sum rolled into an IRA defers tax, while a cash payout can trigger a big one-year tax bill. This calculator ignores taxes — factor them in separately.
What about inflation?
Inflation erodes fixed pension checks over time, while a lump sum you invest can grow. If the pension has no cost-of-living adjustment, the lump sum’s flexibility is worth more than the raw math shows.
Should I consider life expectancy?
Absolutely. The “years you expect payments” input is the biggest lever after the discount rate. A pension that pays for life is longevity insurance a lump sum cannot replicate — weigh that, not just the dollars.