What discount rate should I use?

Use a conservative safe-withdrawal rate (3–5%) or the rate your employer uses in their offer. A higher discount rate makes the pension worth less in today's dollars.

Should I take the pension or lump sum?

Take the pension if its present value exceeds the lump sum and you have longevity in your favor. Take the lump sum if you have investment skills, health concerns, or want to leave money to heirs.

What is the break-even investment return?

The return you'd need to earn on the lump sum to match the pension's value. If the break-even return is below what you can realistically earn, the lump sum may be better.

Does the pension offer survivor benefits?

Many pensions offer joint-and-survivor options that reduce your monthly payment but continue payments to a spouse after your death. Our calculator models a single-life pension — factor in survivor benefits when making your decision.

Pension vs Lump Sum Calculator

By the KalkWise Editorial Team Reviewed for accuracy Updated June 2026

What is the pension vs lump sum calculator?

In short

Whether a pension or lump sum is better depends on the discount rate and your life expectancy. A $3,000/month pension over 25 years has a present value of roughly $560,000 at a 4% discount rate. If the lump sum offer is less than that, the pension wins.

Converts a monthly pension stream into its present value (NPV) and compares it directly to a lump sum buyout offer, showing which is worth more and the break-even investment return.

How to use this calculator

1Enter the monthly pension you'd receive and how many years you expect to collect it.
2Enter the lump sum buyout offer.
3Set the discount rate (what you could safely earn on the lump sum) and expected investment return.
4See which option has higher present value and by how much.

The formula

PV=P×1−(1+r)−nr

winner=(PV>LS)?pension:lump sum

PV = P × (1 − (1+r)^−n) / r; If PV > LS → take pension; else → take lump sum

P: — Monthly pension payment
n: — Total months = years × 12
r: — Monthly discount rate = annual rate / 12
PV: — Present value of pension
LS: — Lump sum offer

Worked example

The scenario

$3,000/month pension, 25 years, $500,000 lump sum, 4% discount rate.

gives

The result

Pension PV ≈ $568,000. The pension is worth $68,000 more than the lump sum at a 4% discount rate.

Common use cases

Employees offered a pension buyout by their employer.
Retirees choosing between monthly pension and a one-time payment.
Anyone comparing a structured annuity to a lump sum settlement.

Limitations & assumptions

Does not account for survivor benefits (spousal pension continuation).
Assumes constant monthly payments — does not model inflation-adjusted pensions.
Does not include taxes, which may differ significantly between the two options.

Frequently asked questions

Use the present value of an annuity formula: PV = P × (1 − (1+r)^−n) / r, where P is the monthly payment, r is the monthly discount rate, and n is total months.

Disclaimer: KalkWise calculators are provided for general informational and educational purposes only and do not constitute financial, investment, tax, or legal advice. Results are estimates based on the figures you enter and the assumptions described above. Actual outcomes will vary. Consult a qualified professional before making financial decisions.

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