Pension vs Lump Sum Calculator

It depends on three things: (1) the implied "internal rate of return" the pension offers vs what you could earn investing the lump sum - typically pensions imply 4-6% real returns; (2) your longevity expectation - long life favors pension, short life favors lump sum; (3) your appetite for managing investments - pensions require zero management; lump sums require self-management or paying an advisor. A break-even analysis is essential before deciding.

Private-sector pensions are insured by the Pension Benefit Guaranty Corporation (PBGC). The 2026 maximum guaranteed benefit at age 65 is approximately $87,000/year. If your pension is below the cap, you're generally safe even in a bankruptcy. Multi-employer (union) pensions have a much lower guarantee (~$13K/year). Public-sector pensions (state and federal) are NOT PBGC-insured but typically have other protections.

Usually no - most private-sector pensions pay a fixed nominal amount that does NOT adjust for inflation. Over 25 years at 3% inflation, real purchasing power roughly halves. Some government pensions (federal CSRS, military, some state pensions) include partial COLAs. Lack of COLA is a key argument for taking the lump sum and managing it yourself - equities can keep pace with inflation, fixed pensions cannot.

A single-life annuity pays only while you live; a joint-and-survivor annuity continues paying (often at 50%-100%) to your spouse after your death. The trade-off: J&S options reduce your monthly payment by 5-15%. Mathematically, J&S is often cheaper than buying life insurance to protect a single-life pension - but compare quotes. Required for married participants unless spouse waives in writing.