Pension Lump Sum vs Annuity Calculator
Compare the monthly income a pension lump sum could generate against the offered monthly pension. Free and accurate.
Calculator by Toolsloft ↗- Income from lump sum
- $3,299.78
- Difference
- $299.78
- Better option
- Take the lump sum
This calculator compares a pension lump-sum offer against the monthly pension by working out how much guaranteed monthly income that lump sum could produce on its own. Use it when your plan gives you a choice between a one-time payout and a lifetime monthly benefit and you want a like-for-like income comparison. It tells you which option pays more per month over the term you set.
How this is calculated
It runs the lump sum through the loan amortization formula, payment = P times r times (1+r)^n divided by ((1+r)^n minus 1), where r is the monthly rate (annual divided by 12 divided by 100) and n is the number of months, giving the level monthly income that fully depletes the lump sum over the chosen term.
How to use
- Enter the lump sum your pension is offering.
- Enter the annual return you expect and the number of years you need income for.
- Enter the monthly pension you were offered, then compare which option pays more.
Examples
- $500,000 at 5% / 20 yr vs $3,000:
income from lump sum $3,299.78 - Difference:
$3,299.78 − $3,000 → +$299.78 (take the lump sum)
FAQ
- How is the income from the lump sum calculated?
- It uses the amortization formula: Income = P·r·(1+r)^n / ((1+r)^n − 1), where P is the lump sum, r is the monthly rate (annual ÷ 12 ÷ 100), and n is the number of months. This is the monthly income the lump sum could pay out over the term while fully depleting it.
- How do I decide which is better?
- If the income the lump sum could generate is at least as much as the offered monthly pension, taking the lump sum gives you more income for the same period. Otherwise the pension pays more.
- What does this calculation leave out?
- It does not account for taxes, inflation, survivor benefits, or longevity beyond the chosen term. Treat it as a starting comparison rather than complete financial advice.