Pension Calculator
Estimate a defined-benefit pension from your years of service and final average salary, and compare it against a lump sum offer.
Your details
Usually the average of your highest 3 or 5 years
Percent of salary earned per year of service
Payout
Lump sum comparison
This calculator runs entirely on your device. Nothing you enter is uploaded, stored, or sold. How this works
Monthly pension benefit
$3,958
$47,500 per year starting at age 62
Includes your inputs, the full breakdown, and every row of the table.
Annual pension
$47,500
Income replacement
50.0%
Share of final salary replaced
Lifetime payout to age 87
$1,187,500
Present value of the pension
$607,209
Discounted at 6.0%
- Final average salary
- $95,000
- Years of service
- 25.0
- Multiplier
- 2.00%
- Annual benefit
- $47,500
What this means
- With no cost-of-living adjustment, this pension loses roughly a third of its purchasing power over 20 years at 2% inflation.
- Enter a lump sum offer to compare it against the present value of the lifetime annuity.
How the pension calculation works
A defined-benefit pension is calculated from a formula, not an account balance: final average salary times a multiplier times years of credited service. A 2% multiplier with 25 years of service replaces 50% of final salary for life.
When an employer offers a lump sum instead, they are buying out that obligation. The comparison hinges on the discount rate. Valuing the pension at a low, bond-like rate makes it look expensive to replace and favors keeping the annuity; valuing it at an optimistic equity return favors the lump sum. Longevity, survivor benefits, and plan solvency all belong in the decision too.
Frequently asked questions
What is a survivor or joint-and-survivor option?
It continues payments to a spouse after your death, typically at 50-100% of the original amount, in exchange for a lower benefit while you are alive. If your spouse would depend on the income, the reduction is usually worth it.
Is my pension insured?
Most private single-employer plans are insured by the Pension Benefit Guaranty Corporation up to annual limits. Government and church plans are generally not PBGC-covered.
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Disclaimer. This calculator is provided for general information and educational purposes only and does not constitute financial, tax, legal, medical, or engineering advice. Results are estimates based on the inputs you provide and the assumptions described above. Confirm any figure with a qualified professional before acting on it.