Pension vs Lump Sum Calculator
Compare a lifetime pension against a lump sum in today’s dollars, and see the return that would make taking the lump sum the better call.
Want to understand the concept, not just the number? Read Pension vs Lump Sum and more below.
How it's calculated
Some pensions let you choose a monthly payment for life or a single lump sum up front. To compare them fairly, you put both in today’s dollars. The pension is worth the discounted value of all its future payments. If that beats the lump sum, the pension is the better deal, and if not, the lump sum is.
Take the default. A $500,000 lump sum against $30,000 a year for 25 years. At a 5 percent discount rate, the pension payments are worth about $422,818 today, which is $77,182 less than the lump sum. On the numbers, you would take the lump sum and invest it.
The discount rate is everything here, since it stands for what you could earn on the lump sum. The break-even rate is about 3.4 percent. Earn more than that and the lump sum wins, earn less and the pension does. Numbers are not the whole story though. A pension is guaranteed income for life with no market risk, which is worth real peace of mind, especially if you might live a long time.
Assumptions
- The pension value is the sum of each year payment discounted at the rate you set. It assumes level payments with no cost-of-living increases.
- It does not price the security of guaranteed income, survivor benefits, or taxes. Treat it as the financial comparison, not the whole decision.
Last updated: 2026-08-08
These assumptions follow our general methodology.
Frequently asked questions
Should I take a pension or a lump sum?
Compare them in today’s dollars. If you can reliably earn more than the break-even rate on the lump sum, taking it and investing usually wins on the numbers. If not, or if you value guaranteed income, the pension is often the safer choice.
What discount rate should I use?
Use a realistic return on the lump sum if you invested it, often somewhere between a safe bond yield and a diversified market return. A higher rate makes the lump sum look better, so it is worth testing a range.
What is the break-even rate?
The return at which the lump sum invested would exactly match the pension. Above it, the lump sum comes out ahead. Below it, the pension does. It turns the choice into a single number you can judge against what you expect to earn.
What does the comparison leave out?
The value of guaranteed income. A pension does not run out and does not fall in a market crash, which a lump sum you manage yourself could. It may also include survivor benefits. Weigh that security alongside the dollar comparison.