All the calculations heroAll The Calculations

finance calculator

Pension Lump Sum vs Annuity

Compare a lump-sum payout to an annuity by discounting the annuity payments to present value.

Results

Annuity present value
$234,331
Lump sum
$200,000
PV difference (annuity − lump sum)
$34,331

How to use this calculator

  1. Enter lump-sum offer.
  2. Enter annual pension payment, number of years, and your discount rate.
  3. Review present value of the annuity versus the lump sum and the difference.

Inputs explained

Discount rate
Your required return/discount rate to value future payments; higher rates lower PV.
Years
Expected number of payment years; adjust for life expectancy/guarantee period.

How it works

Annuity PV = Payment × (1 − (1 + r)^−n) ÷ r (or Payment × n if discount rate is 0). Difference = PV − Lump sum.

Formula

PV = Payment × (1 − (1 + r)^−n) ÷ r
If r=0, PV = Payment × n
Difference = PV − Lump sum

When to use it

  • Comparing lump-sum vs annuity options from a pension plan.
  • Valuing a stream of payments in today’s dollars for decision-making.

Tips & cautions

  • Run multiple discount rates to see sensitivity (e.g., 3–6%).
  • Consider survivor benefits, COLA, and guarantee periods separately (not modeled).
  • Taxes and fees are not included; evaluate net of taxes in practice.
  • No COLA/inflation adjustments; flat payments assumed.
  • No survivor/guarantee period modeling.
  • Taxes and early access/penalties not included.

Worked examples

Lump $200k vs $15k for 25 years at 4%

  • PV ≈ $218,865
  • Difference ≈ +$18,865 (annuity PV > lump)

Lump $250k vs $15k for 25 years at 5%

  • PV ≈ $211,213
  • Difference ≈ −$38,787 (lump higher)

Deep dive

Compare pension lump sum vs annuity by discounting annual payments to present value and seeing which option is higher today.

Enter lump sum, annual pension, years, and discount rate for a quick PV comparison.

FAQs

Does this include COLA?
No. Payments are flat. COLA would increase PV.
What about survivor benefits?
Not modeled. Adjust years/payment if needed to reflect survivor options.
Are taxes included?
No. This is a gross PV comparison. Consider after-tax results separately.
Can I change payment frequency?
This uses annual payments. For monthly, convert payment and rate accordingly.
Is this financial advice?
No. It’s an informational comparison tool.

Related calculators

finance

ROI Calculator

Calculate return on investment (ROI) plus annualized ROI for any holding period.

finance

Net Present Value (NPV) Calculator

Discount projected cash flows to today’s dollars and see whether a project creates value.

finance

Retirement Needs Calculator

Estimate the nest egg required to fund retirement spending at a target withdrawal rate.

Simplified PV comparison. No COLA, survivor benefits, or taxes included. Consult a financial professional before making pension decisions.