Pension Calculator
Calculate your defined benefit pension payout at retirement and compare to a lump sum.
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Frequently Asked Questions
Should I take a pension or lump sum?
Take the pension if: you are in good health and expect to live past the break-even age (usually 78-82), you have no other guaranteed income, or you are risk-averse. Take the lump sum if: you have health issues reducing life expectancy, you have investment expertise, you want to leave money to heirs, or the pension plan is underfunded (check the funded status). Many financial advisors suggest taking the pension for its longevity insurance value.
What is a survivor benefit on a pension?
A survivor benefit provides income to your spouse or beneficiary after your death. Choosing 100% survivor benefit typically reduces your monthly payment by 10-15%, but your spouse receives your full pension for life. The 50% option reduces your payment by 5-8% and your spouse gets half. Single life (no survivor benefit) maximizes your payout but leaves your spouse with nothing if you die first.
Are pension benefits taxable?
Yes — pension income is generally taxable as ordinary income at the federal level. Most states tax pension income, though some states exempt government and military pensions. If you contributed after-tax dollars to the pension, a portion of each payment may be tax-free (your cost basis recovered pro-rata over your expected lifetime). Contact your pension administrator for your specific tax exclusion ratio.
What a defined benefit pension pays, and what it is worth
A traditional pension pays a monthly amount for life based on a formula: a multiplier, times years of service, times final average salary (usually the highest 3 or 5 years). The table shows common formulas and the lump sum that would be needed to buy the same income at a 4% withdrawal rate.
| Multiplier | Years of service | Final average salary | Annual pension | Monthly | Replacement rate | Equivalent lump sum (4% rule) |
|---|---|---|---|---|---|---|
| 1.0% | 20 | $60,000 | $12,000 | $1,000 | 20% | $300,000 |
| 1.5% | 30 | $80,000 | $36,000 | $3,000 | 45% | $900,000 |
| 2.0% | 25 | $70,000 | $35,000 | $2,917 | 50% | $875,000 |
| 2.5% | 30 | $100,000 | $75,000 | $6,250 | 75% | $1,875,000 |
Multipliers of 1% to 1.5% are typical of private plans, 2% to 2.5% of public safety and some state plans. Cost of living adjustments, where they exist, raise the value further.
Worked example
A teacher retiring at 60 with 30 years of service, a 1.5% multiplier and a final average salary of $80,000 receives $36,000 a year, $3,000 a month, for life. To generate the same income from savings at a 4% withdrawal rate would take $900,000; with a 2% annual cost of living adjustment, the pension is worth closer to $1.1 million. Many public pensions reduce Social Security through the Windfall Elimination Provision and Government Pension Offset for workers who did not pay into Social Security, which was repealed for benefits from January 2024 by the Social Security Fairness Act, so check the current treatment of your plan.
Early retirement reductions
Most plans set a normal retirement age (often 65, or 60 to 62 with 30 years of service) and reduce the benefit by 3% to 6% for each year it starts earlier. Retiring at 58 instead of 62 under a 5% reduction cuts the $36,000 above to $28,800 for life. Some plans offer an unreduced benefit when age plus service reaches a number (the rule of 80 or 90). The difference between leaving at 29 and 30 years of service can be worth tens of thousands of dollars, which is why plan documents deserve a close read before a retirement date is chosen.
Lump sum or annuity
Plans that offer a lump sum price it using interest rates set by the IRS; higher rates mean a smaller lump sum for the same monthly benefit, so 2026 lump sum offers are well below those of 2021. Take the annuity when the plan is well funded and you want guaranteed income, especially with a survivor option; take the lump sum when you have other guaranteed income, want to leave an inheritance, or have health reasons to expect a shorter retirement. Divide the lump sum by the annual pension: a ratio below about 15 favors the annuity, above about 20 favors the lump sum, between them it depends on the survivor needs.
Survivor options
A single life annuity pays the most but stops at death. A 50% or 100% joint and survivor option reduces the monthly amount by 5% to 15% and continues to a spouse. Federal law requires spousal consent to waive the survivor benefit on private plans. The reduction is usually a fair price for the protection, and it is permanent; buying term life insurance instead works only if the retiree is insurable at a reasonable premium.