Pension Lump Sum vs Annuity Calculator
Compare a lump sum payout vs monthly annuity payments to find the best option for your retirement.
Pension Details
Spouse & Survivor
Assumptions
Monthly Annuity
$1,950/mo
after tax
Lifetime total: $561,600
Lump Sum (4% Rule)
$1,393/mo
after tax
Remaining at 85: $427,858
Break-Even Age
84
The annuity pays back the lump sum equivalent after 19 years
Assessment
Both options are competitive. The annuity offers security while the lump sum offers flexibility and potential inheritance. Consider your health, risk tolerance, and other income sources.
Annuity Advantages
- Guaranteed income for life — no investment risk
- Cannot outlive the payments
- Survivor benefit (50%) protects spouse
- No investment management required
Lump Sum Advantages
- Full control over your money
- Can be rolled into IRA — tax-deferred growth
- Remaining balance passes to heirs
- Flexibility to adjust withdrawals based on needs
- Invested lump sum can keep pace with inflation (annuity cannot)
Projection by Age
| Age | Annuity Total (After Tax) | Lump Sum Balance |
|---|---|---|
| 65 | $23,400 | $445,200 |
| 70 | $140,400 | $416,518 |
| 75 | $257,400 | $378,136 |
| 80 | $374,400 | $326,772 |
| 84 | $468,000 | $273,429 |
| 85 | $491,400 | $258,035 |
| 90 | $608,400 | $166,049 |
This calculator provides estimates for comparison purposes. Consult a financial advisor before making pension decisions. Actual returns, taxes, and life expectancy may differ.
Lump Sum vs Annuity: The Core Trade-Off
When you retire with a pension, you typically choose between a monthly annuity (guaranteed income for life) or a one-time lump sum payment. The annuity gives you security — you can't outlive it and there's no investment risk. The lump sum gives you control — you invest it yourself, adjust withdrawals, and anything left goes to your heirs. Neither option is universally better. The right choice depends on your health, other income sources, risk tolerance, and whether you need to protect a spouse.
Average Pension Lump Sum Offers (2026)
| Monthly Annuity | Typical Lump Sum Offer | Ratio (Lump Sum / Annual) |
|---|---|---|
| $1,500/mo ($18,000/yr) | $250,000-$320,000 | 14-18x annual |
| $2,500/mo ($30,000/yr) | $420,000-$540,000 | 14-18x annual |
| $4,000/mo ($48,000/yr) | $670,000-$860,000 | 14-18x annual |
| $5,000/mo ($60,000/yr) | $840,000-$1,080,000 | 14-18x annual |
Lump sum amounts vary widely based on interest rates, your age, and plan-specific factors. Higher interest rates reduce lump sum offers.
When the Annuity Is Usually Better
| Scenario | Why Annuity Wins |
|---|---|
| You're in good health / family longevity | You'll collect more total payments |
| Pension has COLA | Payments grow with inflation — hard to replicate with investments |
| No investment experience | No risk of poor investment decisions or market crashes |
| Need guaranteed baseline income | Combined with Social Security, covers essential expenses |
| Spouse needs survivor benefit | Joint/survivor annuity protects your spouse |
When the Lump Sum Is Usually Better
| Scenario | Why Lump Sum Wins |
|---|---|
| Health concerns / shorter life expectancy | Collect all the money now rather than risk dying early |
| Strong investment skills or advisor | May generate better returns than the implied pension rate |
| Want to leave inheritance | Remaining balance passes to heirs (annuity stops at death) |
| Pension plan is underfunded | PBGC limits may reduce your benefit if the plan fails |
| Already have plenty of guaranteed income | SS + other pensions cover basics; lump sum adds flexibility |
Frequently Asked Questions
What is the break-even point?
The break-even age is when total annuity payments equal the lump sum amount. If you choose the annuity and live past this age, you "win" financially. Most pension break-even points fall between ages 78-85. If you expect to live well past the break-even point, the annuity typically delivers more total value.
Can I roll a pension lump sum into an IRA?
Yes — a direct rollover from a pension plan to a traditional IRA is tax-free. This is almost always the right move if you take the lump sum. If you take the cash instead of rolling it over, you'll owe income tax on the entire amount in one year, potentially pushing you into a much higher bracket. A direct rollover lets the money continue growing tax-deferred.
What happens to my pension if the company goes bankrupt?
The Pension Benefit Guaranty Corporation (PBGC) insures private defined benefit pension plans. In 2026, the maximum guaranteed benefit at age 65 is approximately $7,500/month. If your pension exceeds this amount and the plan is underfunded, a lump sum before the company fails might be the safer choice. Federal, state, and military pensions are not covered by PBGC but have their own protections.
See also: Retirement Calculator and Social Security Break-Even Calculator.