Pension vs. Lump Sum Payout Calculator

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Use this calculator to compare the results of getting a lump sum payout instead of a guaranteed monthly pension for life. Find out what the required annual rate of return required would be for your pension plan options. Choose from pensions that are for a single life, Joint and survivor or a life with 10 years certain.

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Pension vs. Lump Sum Payout Calculator Definitions

Important consideration regarding the required rate of return: You should not use the required rate of return as a single deciding factor. It is highly recommended that you carefully weigh all the pros and cons of each pension option (detailed in the table below) before you make your choice:

Pension Lump Sum

Description Annual or monthly payments paid to you and potentially to your spouse (if there is a survivor benefit) for life. A large, one-time upfront payment to you.

Exposure to Stock Market Downturns LOWER – The payments are not impacted by market downturns. And if the bankruptcy of your company is a concern, the Pension Benefit Guaranty Corporation guarantees annual payments (from private pensions*) up to approximately $60,000. HIGHER – Even if you invest the lump sum into a diversified portfolio, your nest egg will still be more exposed to downturns in the stock market than if you had chosen the annuity.

Exposure to Inflation HIGHER – Unless your pension is inflation-adjusted, the buying power of future payments could be significantly eroded by inflation. LOWER – Investing the lump sum in a diversified portfolio gives you a better chance of outpacing inflation during your retirement.

Risk of Running Out of Money LOWER – The annual payments are for life. And if you choose a joint and survivor pension, then your spouse will still receive payments even if he or she outlives you. HIGHER – If overspending or a market downturn wipes out your nest egg prematurely, then you may have only your Social Security payments to live off of.

Other Factors to Consider CHEAPER THAN RETAIL ANNUITIES – Your pension annuity almost always provides a higher annual amount versus what you would receive if you purchased a retail annuity with the lump sum. However, choosing a pension annuity and not deferring Social Security is not advisable. HIGHER SOCIAL SECURITY PAYMENTS – If choosing the pension annuity means you are unable to defer Social Security, you are almost certainly making a costly mistake. Research shows that if instead you use the lump sum to bridge the gap and defer Social Security, you end up with higher income in all future years.

FLEXIBLE – Taking a lump sum gives you more flexibility on when and by how much to spend your money.

*Public pensions of government workers are not covered by the Pension Benefit Guaranty Corporation but are often protected by state constitutions or laws.
Pension type: The type of monthly pension to compare. Your choices are as follows:
Pension Payment Types

Single life Monthly pension payments guaranteed for life the pensioner.

50% Joint and Survivor Monthly pension payments guaranteed for life the pensioner, plus 50% of the monthly pension benefit for the remaining life of the surviving spouse.

100% Joint and Survivor Monthly pension payments guaranteed for life the pensioner, plus 100% of the monthly pension benefit for the remaining life of the surviving spouse.

Life with 10 Years Certain Monthly pension payments guaranteed 10 years or the life the pensioner - whichever is longer.
Cost-of-living adjustment: Annual adjustment, if any, applied to the monthly pension benefit for an increased cost of living. Please check with your particular pension or annuity to determine what if any cost-of-living adjustment should be applied. The tool assumes the first adjustment happens 1 year (12 months) after the first periodic payment.
Monthly pension: The monthly pension paid though the life of the pensioner. Any spousal pension amount is calculated based on amount entered here.
Lump Sum pension payout: The lump sum that you would receive instead of guaranteed monthly pension payments.
Age to receive lump sum payout: This is the age you would receive the lump sum payout.
Current age: This is the current age of the pensioner.
Age pension begins: Age pension begins for the recipient.
Age of death: The age of death is when the primary pensioner dies and any non-spouse pension payments would end.
Spouse's age: Current age of spouse. This is only used for Joint and Survivor pension types.
Spouse's survivors pension: This is only used for Joint and Survivor pension types. The survivors pension is a calculated amount depending on the type of pension that is chosen.
Spouse's age of death: This is the age the spouse dies and any survivors pension would end.
Required rate of return: This is the annual rate of return that would be required on the lump sum amount to match the guaranteed monthly pension payments.
Total pension benefit payments: Total pension payments for the type of pension selected, assuming the pensioner and if applicable their spouse, live to the age(s) entered.

	Pension	Lump Sum
Description	Annual or monthly payments paid to you and potentially to your spouse (if there is a survivor benefit) for life.	A large, one-time upfront payment to you.
Exposure to Stock Market Downturns	LOWER – The payments are not impacted by market downturns. And if the bankruptcy of your company is a concern, the Pension Benefit Guaranty Corporation guarantees annual payments (from private pensions*) up to approximately $60,000.	HIGHER – Even if you invest the lump sum into a diversified portfolio, your nest egg will still be more exposed to downturns in the stock market than if you had chosen the annuity.
Exposure to Inflation	HIGHER – Unless your pension is inflation-adjusted, the buying power of future payments could be significantly eroded by inflation.	LOWER – Investing the lump sum in a diversified portfolio gives you a better chance of outpacing inflation during your retirement.
Risk of Running Out of Money	LOWER – The annual payments are for life. And if you choose a joint and survivor pension, then your spouse will still receive payments even if he or she outlives you.	HIGHER – If overspending or a market downturn wipes out your nest egg prematurely, then you may have only your Social Security payments to live off of.
Other Factors to Consider	CHEAPER THAN RETAIL ANNUITIES – Your pension annuity almost always provides a higher annual amount versus what you would receive if you purchased a retail annuity with the lump sum. However, choosing a pension annuity and not deferring Social Security is not advisable.	HIGHER SOCIAL SECURITY PAYMENTS – If choosing the pension annuity means you are unable to defer Social Security, you are almost certainly making a costly mistake. Research shows that if instead you use the lump sum to bridge the gap and defer Social Security, you end up with higher income in all future years. FLEXIBLE – Taking a lump sum gives you more flexibility on when and by how much to spend your money.

Single life	Monthly pension payments guaranteed for life the pensioner.
50% Joint and Survivor	Monthly pension payments guaranteed for life the pensioner, plus 50% of the monthly pension benefit for the remaining life of the surviving spouse.
100% Joint and Survivor	Monthly pension payments guaranteed for life the pensioner, plus 100% of the monthly pension benefit for the remaining life of the surviving spouse.
Life with 10 Years Certain	Monthly pension payments guaranteed 10 years or the life the pensioner - whichever is longer.