Pension Calculator: Your Benefit, Lump Sum or Monthly, and Survivor Options

A defined-benefit pension promises an income for life, set by a formula in the plan document rather than by what an account earns. The most common private-sector formula is final average pay: a percentage of your pay for each year you worked. Three numbers drive it. The final average salary is usually the average of your highest three or five consecutive years of pay. The multiplier is the percentage credited for each year, typically 1% to 2% in corporate plans and 1.5% to 2.5% in public ones. Years of service are the years you were in the plan, sometimes capped at 30 or 35.

Illustrative example: the people and figures below are hypothetical, not real clients. Numbers are calculated from the stated assumptions.

The calculator opens on a corporate plan with a 1.25% multiplier. A manager with a final average salary of $96,000 and 28 years of service earns $96,000 × 1.25% × 28 = $33,600 a year, or $2,800a month, starting at the plan's normal retirement age of 65. That replaces 35% of the salary it is based on. Add Social Security, which the Social Security estimator projects, and the two together often replace most of a middle-income paycheck, though less of a high one.

Other formulas you may see

Career-average planscredit a percentage of each year's pay as you earn it, so early low-paid years pull the benefit down. Flat-dollar plans, common in union contracts, pay a fixed amount, say $80 a month, for each year of service. Cash balance planslook like an account: the employer credits a pay credit and an interest credit each year, and the lump sum is usually the account balance, while the annuity is that balance converted at the plan's rates. Some plans subtract part of your Social Security (an “offset”), and many froze accruals years ago, so the pay and service that count stop at the freeze date. The summary plan description, which the plan must give you, sets out which formula yours uses (Department of Labor), and your annual benefit statement shows the result.

Most plans let you start the pension before the normal retirement age, but at a lower amount, because it will be paid for more years. A typical plan cuts the benefit by a fixed percentage for each year early. In the example plan the cut is 6% a year, so starting at 62 instead of 65 lowers the pension by 18%, to $2,296 a month, for life.

Real plans are often kinder than a flat cut. Many reduce by 3% a year for the first few years and more after that, and many have an “early retirement subsidy”: someone with 30 years of service, or whose age plus service reaches a figure such as 85, can retire at 60 or 62 with little or no reduction. A subsidy is valuable and easy to forfeit by leaving a year too soon, so check the exact dates before you set a retirement date. Going the other way, private plans usually do not increase the benefit for starting after the normal age unless you keep working and earning service; some public plans do.

The right start age is rarely about the pension alone. Taking it early can let you delay Social Security, which grows by 8% a year from full retirement age to 70, and that is often the better trade for the higher earner in a couple. Run both through the Social Security estimator before you choose.

Many corporate plans, and few public ones, let you take the value of the pension as a single payment instead. The choice is between an income you cannot outlive, paid by the plan, and a sum you control, invest, and can leave to heirs. It is usually irrevocable. Neither is right for everyone, and the price of the trade, which this calculator measures, is only one part of the decision. Our guide to the pension lump sum versus the annuity walks a couple through the whole decision; this page gives you the numbers to bring to it.

Illustrative example: the people and figures below are hypothetical, not real clients. Numbers are calculated from the stated assumptions.

In the example, the plan offers $450,000 at 65 or $2,800 a month for life with no cost-of-living adjustment. That is $33,600 a year, 7.5% of the lump sum, which looks generous until you remember that a payout rate is not a return: part of each check is your own money coming back.

A private plan's lump sum is the present value of your annuity, and federal law sets a floor on it. Under Internal Revenue Code section 417(e), the lump sum cannot be less than the value worked out with an IRS mortality table and three corporate-bond “segment rates”: one for payments due in the next five years, one for years five to twenty, and one for payments after that (26 U.S.C. 417). The IRS publishes the rates each month (IRS minimum present value segment rates). Each plan names which month's rates it uses, often a month several months before the payment date, and holds them for a quarter or a year.

The consequence that matters most: when interest rates rise, lump sums shrink, and when they fall, lump sums grow. The calculation behind it is easy to see. Valued as a fixed stream to IRS life expectancy (87.9 for a 65-year-old), the example's payments are worth:

A one-point rise from 5% to 6% cuts the value by 8%. This is a simplified stand-in, a single flat rate over a fixed term, not the plan's segment-rate and mortality calculation, but the direction and rough size are right. If your plan sets the rates once a year and rates have risen since, the lump sum will be smaller next year; if they have fallen, it may be larger. Ask the plan which month's rates apply and when they reset.

Two features of the pricing cut in different directions for different people. The mortality table is unisex and population-wide, so it values the annuity for an average person: a healthy woman, who is likely to live longer than average, gets a lump sum priced for a shorter life, which tilts the comparison toward keeping the annuity. And the segment rates are corporate bond yields, higher than Treasury yields, which makes the lump sum a little smaller than a Treasury-based price would be.

The cleanest test is to treat the lump sum as the price of the annuity and ask what return that price implies. If you hand back $450,000 and receive $2,800 a month until a given age, the payments earn a particular annual rate on your money, exactly like a bond. The longer you live, the higher it is:

At IRS life expectancy for a 65-year-old, 87.9, the annuity pays like a bond yielding 5.4%; to 90 it yields 5.8%. Compare that with two things: what high-quality bonds of similar length pay today, and the return you would realistically earn on the lump sum after fees. An implied return well above the safe bond yield means the plan is selling you guaranteed income cheaply; one well below means the lump sum is the better buy.

The same comparison, turned around, asks how long the lump sum would last if you invested it and paid yourself the same $2,800 a month:

• at a steady 3% a year, it runs out at about 82;
• at a steady 4% a year, it runs out at about 83.9;
• at a steady 5% a year, it runs out at about 86.6;
• at a steady 6% a year, it runs out at about 90.8;
• at a steady 7% a year, it runs out at about 99.5;

Those are steady returns, the best case. A portfolio that falls in the first years of withdrawals runs out sooner, which the retirement withdrawal calculator tests. The annuity payout calculator runs the problem the other way, showing the income a lump sum could support for a chosen number of years.

Life expectancy is an average, and half of people outlive it. For a 65-year-old, the IRS single life table the calculator uses gives 22.9 more years, to about 87.9. Readers of this site, who tend to be healthier and wealthier than average, can expect more. For a married couple, the odds that at least one of you reaches 90 are much higher than for either alone, which is why the survivor option matters as much as the single-life figure.

Health is the one piece of private information you have that the plan does not price. A serious diagnosis before the election, a family history of short lives, or a much younger spouse who will not need the income all point toward the lump sum. Good health, long-lived parents and a spouse who depends on the income point toward the annuity. In the example, the annuity is worth more than the lump sum invested at 5% only if you live past about 86.7. That age, set against your honest view of your health, is often the most useful single number on the page.

Most private-sector pensions pay a fixed dollar amount for life. At 3% inflation a fixed check loses about a quarter of its buying power in ten years and close to half in twenty, so a pension that covers your spending at 65 covers far less at 85. The inflation calculator shows the erosion for any rate. A lump sum, invested partly in stocks, can at least try to keep up.

Public plans are different: many add a cost-of-living adjustment each year, either tied to the consumer price index or fixed at a rate such as 2% or 3%, sometimes with a cap.

Illustrative example: the people and figures below are hypothetical, not real clients. Numbers are calculated from the stated assumptions.

Take a teacher with 30 years of service, a final average salary of $88,000 and a 2% multiplier. At 62 her pension is $4,400 a month, replacing 60% of her pay, and a 2% COLA raises it to about $6,938 a month by 85. Valued at 5% to her life expectancy of 87.4, the COLA adds $171,677 to the pension's worth: $942,286 against $770,609 for the same starting check with no increases. The same arithmetic applies to the corporate offer above: if its $2,800 a month rose 2% a year, the implied return to life expectancy would be 7.4% instead of 5.4%. Enter a COLA in the calculator whenever your plan has one, or you will understate the annuity.

The Pension Benefit Guaranty Corporation insures most private-sector defined-benefit plans. If a plan ends without enough money, the PBGC pays benefits up to a legal maximum that depends on the year the plan terminates and your age when payments start. For single-employer plans terminating in 2026, the maximum at 65 is $7,789.77 a month as a straight-life annuity and $7,010.79 as a joint-and-50%-survivor annuity; at 62 it is $6,153.92, and at 70 $12,931.02. For plans terminating in 2027, the age-65 figure rises to $8,113.64 (PBGC maximum monthly guarantee tables).

The PBGC notes that most benefits in the plans it takes over are below the maximum. The gaps are elsewhere: multiemployer (union) plans have a separate, much lower guarantee; plans of government employers and churches are not insured by the PBGC at all; and some benefit increases made shortly before a plan ends are only partly covered (PBGC FAQs). If your pension is above the limit, or your employer's finances are weak, that is a point in favor of the lump sum, which is yours once it is paid. If your employer has transferred the pension to an insurance company, the PBGC no longer stands behind it; the insurer and your state's guaranty association do.

A lump sum is taxable in the year you receive it unless you roll it over. A direct rollover, paid by the plan straight to an IRA or another employer plan, moves the whole amount with no tax and no withholding. If the plan pays the money to you instead, it must withhold 20% for federal tax, even if you plan to roll it over. On the example's $450,000, that is $90,000. You then have 60 days to deposit the full $450,000 in an IRA, finding the withheld $90,000 from other savings, or the shortfall is taxed as income (IRS: rollovers of retirement plan and IRA distributions). Ask for the direct rollover.

Cashing out a large lump sum lands it in one tax year, usually at the top brackets, and raises the income that decides how much of your Social Security is taxed (the taxable Social Security calculator shows the effect) and your Medicare premiums two years later, which the IRMAA calculator prices. Our guide to rolling a 401(k) into an IRA covers the mechanics, which are the same for a pension lump sum.

One trap for early retirees: payments from an employer plan after you leave work in or after the year you turn 55 escape the 10% additional tax on early distributions, but once the money is in an IRA that exception is gone until 59½ (IRS: exceptions to tax on early distributions). If you will need some of the money before 59½, consider leaving that part in the plan or taking it before the rollover.

For a married participant in a private plan, federal law makes a joint-and-survivor annuity the default. The survivor must receive between 50% and 100% of the amount paid while you are both alive, and the plan must also offer a second, “qualified optional” survivor level: 75% if the default is under 75%, or 50% if the default is 75% or more. You can choose a single-life annuity or a lump sum only if your spouse consents in writing, witnessed by a notary or a plan representative, shortly before payments begin (IRS: qualified joint and survivor annuity; 26 U.S.C. 417). These protections came from the Retirement Equity Act of 1984. The plan can pay out a small benefit, $7,000or less, without anyone's consent.

Illustrative example: the people and figures below are hypothetical, not real clients. Numbers are calculated from the stated assumptions.

The survivor tab opens on illustrative quotes for a 65-year-old with a spouse of 62: $2,800 a month as a single-life annuity, $2,610 with a 50% survivor benefit, $2,540 with 75% and $2,470 with 100%. The 50% option costs $190 a month, the 100% option $330. If you die at 84 and your spouse lives to 92, the 100% option pays $889,200 in total against $638,400 for single life. Reverse the luck, you living to 92 and your spouse dying at 85, and single life pays $907,200 against $800,280. In the first scenario your spouse needs to outlive you by only about 2.6 years for the 100% option to come out ahead.

Choose the level by what your spouse would need, counting the smaller Social Security check that stops at the first death; our guide to when to claim Social Security explains survivor benefits. Use the plan's own quotes, which this calculator does not try to estimate: each plan uses its own actuarial factors, based on both ages, and some subsidize the survivor option or add a pop-up that restores the single-life amount if your spouse dies first. The alternative of taking single life and buying life insurance for the survivor works only if the policy is cheaper than the difference and stays in force for life.

Pension payments are ordinary income in the year you receive them, taxed at your federal bracket, and you can have tax withheld from each payment on Form W-4P. If you paid into the plan with after-tax money, as many public employees do, part of each payment is a tax-free return of those contributions, worked out under the Simplified Method in IRS Publication 575; the plan's Form 1099-R usually shows the taxable amount. States differ widely: some exempt public pensions, some exempt part of any pension, and some tax them in full.

A rolled-over lump sum is taxed only as you withdraw it, under IRA rules: withdrawals are ordinary income, required minimum distributions begin at 73 (75 for people born in 1960 or later), and from 70½ you can give from it directly to charity. That flexibility, choosing how much income to take in each year, is worth something real for anyone managing tax brackets, Roth conversions or Medicare premiums. A pension offers no such control.

Teachers, police, firefighters and other state and local employees are often covered by a public plan instead of, or in addition to, Social Security. These plans are not covered by ERISA or the PBGC; they are backed by the state or local government, and the rules on survivor options and spousal consent come from state law and the plan itself. Lump sums are rare. More often the choice is between the annuity and a refund of your own contributions, or a deferred retirement option plan (DROP) that accumulates payments while you keep working.

For decades, a pension from work not covered by Social Security also reduced Social Security benefits, through the Windfall Elimination Provision and the Government Pension Offset. The Social Security Fairness Act, signed on January 5, 2025, repealed both, for benefits payable for months after December 2023 (Public Law 118-273). A public pension no longer reduces your own Social Security benefit or a spousal or survivor benefit. If you were told years ago that your pension would wipe out a spousal or survivor benefit, ask Social Security to check again.

Some plans let you take part of the benefit as cash and the rest as a smaller annuity. If the split is proportional, the price does not change: taking 25% of the example as $112,500 and keeping $2,100 a month gives up $700 a month for $112,500, which implies the same 5.4% to life expectancy. What changes is the mix. A partial lump sum can fund the years before Social Security starts, keep a reserve for health costs, or leave something to heirs, while the annuity still covers the core bills. If your plan does not offer one, you can build the same mix by taking the full lump sum and buying an income annuity with part of it; our guide to types of annuitiescompares the options, though an insurer's price is usually worse than the plan's.

• What is my benefit at each possible start date, and is there an early retirement subsidy I would lose by leaving sooner?
• What are the monthly amounts for every payout form, using my spouse's actual date of birth? Is there a pop-up option?
• Does the pension have a cost-of-living adjustment, and is it guaranteed or discretionary?
• Which month's interest rates set the lump sum, when do they reset, and what will the lump sum be after the reset?
• Can I take a partial lump sum, and is the deadline for the election fixed?
• Can the lump sum be paid as a direct rollover, and to which kinds of accounts?
• Has the plan been, or is it about to be, transferred to an insurance company?