Pension vs Lump Sum Calculator
Your employer offered a buyout. Is the lump sum worth giving up the monthly pension?
Last updated: October 2026 · 2026 PBGC guarantee limits
The two offers
0 if the pension is fixed
Also used as the discount rate for the pension's value
Lump sum balance vs pension checks received
At your life expectancy the invested lump sum would have $0 left for heirs, while the pension would have paid $480,000 in total.
How the comparison works
An employer pension is a promise of monthly income for life, sometimes with a cost-of-living increase and a survivor benefit for your spouse. A lump sum is that promise turned into cash today. To compare them, the calculator discounts every pension check you expect to receive back to today at the return you could earn yourself. If that present value is bigger than the lump sum, the pension is worth more on your assumptions.
It also solves the problem the other way round: the implied rate is the return at which the pension's checks are worth exactly the lump sum. If you could not reliably earn that much, the pension is the better deal. Finally, it invests the lump sum at your return and pays you the same monthly amount from it, to show the age when that money would run out.
Worked example
You are 65 and offered $2,000 a month for life with no COLA, or $300,000 now. At a 5% return and a life expectancy of 85, the pension is worth about $305,900 today, slightly more than the lump sum. The implied return is about 5.24%. The pension checks add up to $300,000 at age 77.5, and a $300,000 lump sum paying out $2,000 a month at 5% runs out at about 84.4. Live past that and the pension wins clearly. If you expect to earn 6% instead, the pension is worth about $282,800 and the lump sum looks better.
Why this is different from a generic annuity comparison
An employer pension has features an insurance annuity offer usually does not. Private plans must compute lump sums using IRS interest and mortality rules, so the offer moves with corporate bond rates. Married participants get a joint and survivor pension by default, and choosing anything else, including the lump sum, needs the spouse's written consent. The pension may be insured by PBGC. For an annuity you would buy yourself, use the annuity vs lump sum calculator.
Taxes and the PBGC
Roll the lump sum directly to an IRA and no tax is due until you withdraw. Take it as cash and 20% is withheld, the whole amount is taxed that year, and the 10% early withdrawal penalty may apply before 59 and a half. For a single-employer plan taken over by PBGC in 2026, the guarantee at age 65 is up to $7,789.77 a month for a single-life pension and $7,010.79 for a joint and 50% survivor pension. Lower limits apply for earlier start ages. Once rolled over, plan withdrawals with the retirement withdrawal calculator and consider timing conversions with the Roth conversion calculator.
Frequently asked questions
Is it better to take a pension or a lump sum?
It depends on how long you expect to live, what return you could realistically earn, and whether you value a check that cannot run out. If the pension's implied return is higher than what you could earn safely yourself, the pension is the better deal. A lump sum wins if your health is poor, the plan is weak, or you want to leave money to heirs.
How is a pension lump sum calculated?
Private plans must convert the pension to a lump sum using IRS minimum present value rules under IRC section 417(e): corporate bond segment rates and an IRS mortality table. Higher interest rates produce smaller lump sums, so the same pension can be worth noticeably less as a lump sum after rates rise.
What is the implied rate of return on my pension?
It is the investment return the lump sum would need to earn to pay you exactly the same checks for the same period. If the implied rate is 6% and you would invest the lump sum in bonds earning 4.5%, the pension is the better value at your life expectancy.
Do I pay tax on a pension lump sum?
Not if you roll it directly into an IRA or another employer plan. If the plan pays it to you instead, 20% federal tax is withheld, the whole amount is taxable that year, and a 10% penalty applies if you are under 59 and a half (or under 55 in the year you left the employer). Monthly pension checks are taxed as ordinary income as you receive them.
What happens to my pension if my employer goes bankrupt?
Most private pensions are insured by the Pension Benefit Guaranty Corporation. For a single-employer plan taken over in 2026, the guarantee at age 65 is up to $7,789.77 a month for a single-life pension and $7,010.79 for a joint and 50% survivor pension. Government pensions are not covered by PBGC.
Should I choose a survivor option?
If you are married, federal law makes a joint and survivor pension the default, and your spouse must consent in writing to anything else. The survivor option pays less while you are alive but keeps paying your spouse after you die. Taking the lump sum also needs spousal consent.
Keep reading
- How Long Will $1 Million Last in Retirement?
- Social Security in 2026: Wage Base and Claiming Strategy
- Social Security break-even calculator
PBGC figures are for single-employer plans. Multiemployer plans have a much lower guarantee.