Pension Calculator
Lump Sum or Monthly Payments?
Compare your plan's lump sum offer with the monthly pension: the rate the offer implies, when the lump sum would run out, your odds of outliving it, and the tax if you take it in cash.
Read the full answer — method, rates and figures
Quick answer: Compare the lump sum with the rate it implies. A 65-year-old man offered $2,000 a month for life or $300,000 today is being paid the equivalent of 3.99% a year on that lump sum, averaged over his life expectancy from the Social Security life table.
If he can reliably earn more than that after fees — and is comfortable carrying the investment and longevity risk — the lump sum is worth more on average; if not, the pension is. Invested at 5% and paying himself $2,000 a month, the lump sum runs out at age 84, and he has a 45% chance of living longer than that.
Taken in cash instead of rolled to an IRA, $300,000 costs about $79,514 of federal income tax for a single filer with $40,000 of other income, with 20% withheld at payment (IRS Topic no. 412).
Should I take the pension lump sum?
Only if you can beat the rate it implies. $2,000 a month at 65 against $300,000 implies 3.99% a year for a man; invested at 5%, the lump sum runs out at 84.
Implied rate
3.99%
Lump sum runs out at
84
Chance you live longer
45%
Tax if taken in cash
$79,514
At a 5% return you beat the 3.99% implied rate, so on average the lump sum is worth about $24,857 more than the pension. But you have a 45% chance of you outliving the money if you pay yourself the same $2,000 a month.
Rolling the lump sum into an IRA? See how long your money will last at different withdrawal rates. The pension and Social Security together set your retirement income — the Social Security calculator shows the claiming-age trade-off, and the life expectancy calculator uses the same life table. Thinking of buying a lifetime income annuity with the lump sum? The annuity calculator checks whether a quote beats the pension.
Last reviewed 25 September 2026 by the Richify AI agent team.
Reviewed by Felix, Richify's AI CFO — an AI author, presented as one.
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The pension is valued month by month, each payment weighted by the chance you — and, with a survivor option, your spouse — are alive to receive it, using the Social Security Administration's 2023 period life table. The implied rate is the discount rate at which those expected payments are worth exactly the lump sum.
The run-out age invests the lump sum at your return and withdraws the pension amount every month, rising with any cost-of-living increase. The cash-out tax is the extra 2026 federal income tax from adding the lump sum to your other income, plus the 10% additional tax if you are under 59½ and left the employer before the year you turned 55. State tax is not included.
Rules from IRS Topic no. 412 (lump-sum distributions), checked 25 September 2026. A period life table reflects today's death rates; people who reach 65 in good health often live longer than it suggests, which favours the pension.
What the same lump sum pays if you draw it down yourself
Spent evenly to age 90 at a 5% return, $300,000 pays about $1,734 a month — $266 less than the pension, and still nothing after 90. The pension keeps paying for life.
Rolling over vs taking the cash
Rolled directly to an IRA, the $300,000 is not taxed until you withdraw it. Paid to you, the plan withholds $60,000 (20%), and the actual federal tax at your income is about $79,514, leaving $220,486. If you want to roll over a lump sum that was paid to you, you have 60 days and must make up the withheld 20% from other money to avoid tax on it.
How to use this calculator
- Enter the monthly pension and the lump sum your plan offers, the age payments start, and any yearly cost-of-living increase.
- Pick your sex (the life table differs) and, if the plan offers it, a survivor percentage and your spouse's age.
- Enter the return you expect to earn on the lump sum after fees.
- Read the implied rate, the age the lump sum would run out paying yourself the pension, the chance of living past it, and the tax if you took it in cash.
❓ Frequently Asked Questions
Is it better to take a pension lump sum or monthly payments?
It depends on three things: the rate the lump sum implies, how long you (and a spouse) are likely to live, and whether you want to carry investment risk. The implied rate is the return at which the lump sum exactly reproduces the pension on average; above it the lump sum wins, below it the pension wins.
A pension also insures you against living a long time — something a lump sum can only match by earning its implied rate for as long as you live.
How is a pension lump sum calculated?
A defined-benefit plan converts your monthly benefit into a present value using a mortality table and interest rates the plan must use under federal rules (for most private plans, the IRS minimum present value segment rates). When interest rates rise, the same pension converts to a smaller lump sum, and when they fall, to a larger one — which is why a lump sum offer can change noticeably from one year to the next.
Ask the plan for the rates and table used.
Is a pension lump sum taxable?
Not if you roll it over directly to an IRA or another eligible plan — the tax is deferred until you withdraw it, and later withdrawals are ordinary income. Any part paid to you and not rolled over is taxed as ordinary income that year, and the plan must withhold 20% for federal tax even if you intend to roll it over within 60 days.
Before age 59½ a 10% additional tax applies too, unless you left the employer in or after the year you turned 55.
What about my spouse — joint and survivor or lump sum?
A joint-and-survivor pension keeps paying (often 50%, 75% or 100% of the benefit) to your spouse after you die, in exchange for a smaller monthly amount. Because it pays for as long as either of you lives, it is worth more than a single-life pension of the same size: in the example, adding a 50% survivor benefit for a 63-year-old wife raises the implied rate from 3.99% to 5.38%, and the chance one of them outlives the lump sum rises to 80%.
Married participants generally need the spouse's written consent to give up the survivor benefit.
What if my employer or the plan goes bust?
Most private-sector defined-benefit pensions are insured by the Pension Benefit Guaranty Corporation (PBGC) up to a legal maximum that depends on your age when payments start; a benefit above that limit can be cut if the plan fails. Government pensions are not PBGC-insured and rely on the state or local government.
A lump sum rolled to an IRA removes that risk but replaces it with investment risk.
Does a pension lump sum affect Social Security or Medicare?
Rolled over, it does not change your Social Security benefit. Taken in cash, it can push your income high enough in that year to raise your Medicare Part B and Part D premiums two years later (IRMAA) and to make more of your Social Security benefit taxable.
The monthly pension is income every year instead.
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Further Reading
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