Pension Lump Sum vs Annuity Calculator
Compare a pension lump sum offer against a lifetime annuity stream.
- Last reviewed
- August 26, 2026
- Cost
- Free to use
- Data
- Runs in your browser
- Reviewed by
- Anton Jonson
PV of Annuity
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Lump Sum Offered
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Worth More
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Break-Even Age
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Years to Break Even
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Methodology
How this calculator handles inputs
This calculator uses the values you enter above and applies the formula explained in the guide below. Results update in the browser and are intended for quick planning, comparison, and sanity-checking.
- Use consistent periods, currencies, and units across inputs.
- Review any assumptions before using the result in a decision.
- Recalculate when rates, prices, tax rules, or business terms change.
Important note
This tool provides general planning information only. It is not tax, legal, financial, accounting, or investment advice. Check the current rules for your location and speak with a qualified professional before making a high-stakes decision.
Guide
How it works
Use this calculator to compare a pension lump sum offer with a lifetime annuity payment stream.
What this calculator does
The pension lump sum vs annuity calculator compares the present value of pension payments with a lump sum offer. It also estimates how long the lump sum may last if invested and drawn down.
It uses:
- lump sum offer
- monthly annuity offer
- years in retirement
- expected investment return
Lump Sum vs Annuity Formula
PV of Annuity = Monthly Payment × ((1 - (1 + r)^-n) / r)
Where:
- Monthly Payment = pension annuity offer
- r = monthly discount rate
- n = total monthly payments
- PV = present value of income stream
Example calculation
If:
- Lump sum = 500,000
- Monthly annuity = 3,000
- Years = 25
- Discount rate = 5%
Then:
- Annual annuity = 36,000
- Total payments = 900,000
- Present value is discounted
- Compare present value with 500,000
The better choice depends on return, longevity, and risk.
What is lump sum vs annuity?
Lump sum vs annuity is the choice between taking pension value as one payment or as regular lifetime income. Each option has different risk and flexibility.
Why lump sum vs annuity matters
- affects retirement income security
- changes investment responsibility
- shifts longevity risk
- affects estate flexibility
When to use this calculator
- comparing pension payout options
- estimating annuity present value
- testing life expectancy assumptions
- reviewing investment return assumptions
Common mistakes
- comparing total payments without discounting
- ignoring longevity risk
- assuming investment returns are guaranteed
- overlooking survivor benefits
Lump sum vs monthly pension
Lump sum gives control and investment risk. Monthly pension gives predictable income but less flexibility.
The better option depends on personal risk and income needs.
FAQs
What is lump sum vs annuity?
It is the choice between one pension payment and a stream of regular payments.
How do you calculate lump sum vs annuity?
Compare the lump sum with the present value of the annuity payment stream.
What is a good pension payout choice?
A good choice fits income needs, longevity expectations, risk tolerance, and survivor needs.
What is the difference between lump sum and monthly pension?
Lump sum is flexible but risky. Monthly pension is steady but less flexible.
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