When a former employer offers to buy out your monthly pension check with one check of your own, the decision is a pricing question: is the cash enough to reproduce the stream it replaces? This calculator runs the comparison three ways. It asks how long the lump sum lasts if you draw the same monthly amount the pension would pay, what monthly income the cash can actually support to your target age, and what discount rate the offer implies. Only about 14 percent of private-industry workers still have a defined benefit plan to make this choice on, so the stakes per decision are high.
The election worksheet gives you two numbers and no method for comparing them. The monthly check is easy to picture and hard to price; the lump sum is easy to count and hard to judge. The comparison this page runs removes the mystery by forcing both paths to deliver the same cash flows. Take the lump sum, invest it, and withdraw exactly what the pension would have paid, month after month. Two things can happen. The money outlasts you, in which case the cash was the richer offer and your heirs keep the remainder. Or it runs dry at a computable age, in which case every month you live past that point is a month the annuity pays for free.
At the defaults, the $425,000 offer drawn at $2,500 a month with a 5 percent return lasts 24 years and 9 months, quitting at age 89 years 9 months. The pension, with no such endpoint, has paid $750,000 by the 90th birthday and keeps paying. That does not make the annuity the automatic winner; it makes 89 or so the break-even age, and everything turns on where your honest life expectancy and your honest return assumptions land. The Social Security Administration's 2026 Trustees Report puts period life expectancy at 65 at about 18.2 additional years for men and 20.7 for women, which averages to the mid-80s, and averages are precisely the number a one-time, irreversible election should not lean on.
Variables in plain terms. The pension is the single-life monthly benefit from the worksheet, $2,500 here. The COLA input grows the check, and the lump-sum withdrawals grow with it so the two paths stay matched; most private plans set it to zero, and the FAQ covers why that default matters. The monthly rate i converts your annual return assumption into the growth the lump sum earns between withdrawals. The supported-income line answers a subtler question than break-even age: rather than forcing the lump sum to copy the pension check, it asks what starting income the cash can actually sustain to your target age, spending the account down to zero on schedule.
A $2,500 monthly check from age 65, a $425,000 buyout, a 5 percent return, no COLA, horizon age 90. The lump sum, drawn at the pension's own rate, hits zero in month 297, at age 89 years 9 months. By the 90th birthday the pension has paid out $750,000 against a lump path that is $9,225.83 in the hole. Asking the cash what it can support instead: spending down to exactly zero at 90 supports $2,484.51 a month, 0.6 percent less than the pension pays, and stretching the horizon to 95 cuts the supported check to $2,281.49. The offer's implied discount rate is 5.06 percent to age 90 and 5.82 percent to 95, which is the number to set beside your own realistic return.
| Measure at the defaults | Value |
|---|---|
| Monthly benefit / annual value | $2,500.00 / $30,000 |
| Lump sum offer | $425,000.00 |
| Lump lasts (drawing $2,500/mo at 5%) | 24 yrs 9 mos, to age 89.75 |
| Pension collected by age 90 | $750,000.00 |
| Lump path balance at age 90 | −$9,225.83 |
| Income the lump supports to age 90 | $2,484.51/mo |
| Income the lump supports to age 95 | $2,281.49/mo |
| Implied discount rate of the offer (to 90) | 5.06%/yr |
The milestones show why this decision feels comfortable for years and only gets decided at the end. At 70 the pension has paid $150,000 while the lump path still holds $375,412.23; the cash looks abundant. At 80 the cumulative check has reached $450,000 and the account is down to $230,101.81. At 85 the account holds $125,287.95 against $600,000 collected, and five years later it is gone while the check keeps arriving. The lump sum's advantage is real but spendable once; the annuity's advantage arrives exactly when portfolios and health are both at their most fragile.
| Age | Pension collected | Lump path balance |
|---|---|---|
| 70 | $150,000.00 | $375,412.23 |
| 75 | $300,000.00 | $311,773.34 |
| 80 | $450,000.00 | $230,101.81 |
| 85 | $600,000.00 | $125,287.95 |
| 90 | $750,000.00 | −$9,225.83 |
The return assumption dominates, and the sensitivity is bigger than most people guess. At 4 percent the lump path dies at 86 exactly; at 5 percent, at 89 years 9 months; at 6 percent, at 96 years 9 months. One point of return moves the break-even age five to seven years, roughly the distance from a coin flip to a confident call. That asymmetry deserves respect: a pension check cannot sequence-fail, while a withdrawing portfolio can, and retirees drawing income rarely capture the full average return of the assets they hold.
Two sanity checks frame the offer from outside the model. The 4 percent rule on $425,000 supports $1,416.67 a month, so the pension check is 76 percent richer than a standard sustainable-withdrawal shorthand on the same money. And the context of who still gets to make this choice: defined benefit access covers 14 percent of private-industry workers against 86 percent of state and local government workers, per the Bureau of Labor Statistics' March 2026 survey, while the maximum defined benefit pension the IRS allows for 2026 is $290,000 a year and the PBGC guarantee for a 65-year-old's straight-life check tops out at $7,789.77 a month. For the annuity side of a much larger benefit, plan health stops being a footnote. For a general-purpose income stream comparison beyond pensions, the annuity calculator prices commercial payout rates, the retirement withdrawal calculator stress-tests a portfolio drawn down over a fixed horizon, and the Social Security estimator covers the other lifetime annuity most retirees hold.
Federal rules, not generosity, set the number. Under Internal Revenue Code section 417(e), a lump sum must equal the present value of the annuity, discounted using an applicable mortality table and corporate bond yield curves that the IRS publishes monthly in three segments. Plans look back at those segment rates, so when interest rates are high the discounting is aggressive and the same monthly check converts to a smaller lump sum. In the August 2025 segment rates that feed 2026 plan years, the three curves ran 4.20, 5.29, and 6.08 percent. This calculator flips that around: the implied discount rate row tells you what rate the offer embeds, so you can ask whether your own realistic investment return beats it. If your honest answer is below the implied rate, the annuity is the better-priced deal.
Not immediately, if you roll it over. A direct rollover from the pension to an IRA moves the money with no tax due, and it keeps growing tax-deferred; you pay ordinary income tax on each withdrawal later, exactly as you would on each pension check. The trap is the indirect route: if the check is paid to you instead, the plan must withhold 20 percent for federal tax, and you have only 60 days to deposit the full amount, including the withheld 20 percent, into an IRA to avoid tax and possible penalties on the rest. Both paths in this calculator are treated as pre-tax for simplicity, because a rolled lump sum and a monthly pension check are taxed on the same ordinary-income basis. If you would spend part of the cash instead of rolling it, add the tax on that spending to the lump sum side honestly.
This calculator prices a single-life annuity, which is the highest monthly figure on the election worksheet. Federal law requires that a married participant's default be the qualified joint and survivor annuity, which pays less per month while both spouses are alive and continues a reduced amount, commonly 50 or 75 percent, to the survivor. The reduction against the single-life number is often in the 8 to 15 percent range depending on ages. The lump sum offer must be the actuarial equivalent of whichever form you elect, so taking the survivor option shrinks the monthly check and the lump sum together. Run the numbers both ways with your spouse's longevity in mind: a survivor benefit is insurance against outliving a partner, and treating it as a needless cost is how widows end up with no income.
Be conservative, and remember that the return that matters is the one you will actually earn while drawing income, in the sequence you will earn it. A retiree withdrawing monthly cannot hold an all-equity portfolio safely, and a bad market early in retirement does damage that later average returns never repair; this is sequence-of-returns risk, and it is the main reason the assumed return should sit well below a portfolio's long-run average. The sensitivity view makes the stakes concrete: at the page's defaults, a 4 percent return makes the lump sum run out at about age 86, a 5 percent return at about 89 years 9 months, and a 6 percent return at about 96 years 9 months. One percentage point moves the break-even age by five to seven years, which is why the honest input is not the return you hope for.
It is the strongest argument for the lump sum, and the calculator models it directly with the annual pension increase input, which defaults to zero because most private-sector plans pay a fixed nominal check. A $2,500 check is worth about $1,858 in today's dollars after 15 years of 2 percent inflation and about $1,524 after 25 years. The lump sum side, invested even partly in equities or inflation-protected bonds, has a claim on rising prices that the fixed check lacks. Set the increase input to your plan's actual COLA if it has one; public-sector plans often do. The honest comparison is not pension versus lump sum in year one, it is a fixed nominal stream against a portfolio whose spending power you control, discounted by whatever inflation turns out to be.
They cut in opposite directions, which is why both deserve a look. The annuity is a decades-long unsecured promise from your former employer; if the plan terminates underfunded, the Pension Benefit Guaranty Corporation backs it, but only up to a ceiling that scales with age and benefit form. For plans that terminate in 2026 the guarantee tops out at $7,789.77 a month for a 65-year-old taking a straight-life annuity, which covers most participants but not the most generous benefits; the average benefit in PBGC-trusteed plans was around $545 a month in fiscal 2024. The lump sum, once rolled over, is entirely yours and bears market risk instead of sponsor risk. If your monthly check approaches the guarantee ceiling, or your former employer's balance sheet looks shaky, that shifts weight toward the cash; a rock-solid sponsor with a modest benefit shifts it back.
All calculation logic on this page is implemented from the primary documents below. Each one is listed with the figure it supplies, so any rate or threshold in the result can be traced back to its published source.
Benefit rules and cost assumptions stated on the page, not implied.