Pension lump sum or monthly payments calculator (2026)

Worked example: $111,000 or $911 a month from 62

This is the offer a Bogleheads forum member asked about. Assumptions: you are 62 now and the pension starts now, single life, no cost-of-living increase, the lump sum would earn 5% a year, inflation is 2.5%, and mortality follows SSA’s 2023 period life table (2026 Trustees Report).

• Interest rate the pension pays: 7.1% for a man, 8.0% for a woman (weighted by survival); 8.2% for a man who lives exactly to his life expectancy of 82 years 3 months.
• Plain break-even: 122 payments, at 72 years 1 month. A 62-year-old man has a 83% chance of reaching it, a woman 89%.
• The lump sum at 5%: paying yourself $911 a month, it runs out at 75 years 11 months; the pension keeps paying however long you live.
• Value of the pension at 5%: $131,814 for a man ($143,398 for a woman), against the $111,000 lump sum.
• Inflation: with no COLA, $911 buys what $552 buys today by 82 years 3 months.

So on these assumptions the pension is worth more unless you expect to earn over about 7.1% a year on the lump sum, or have reasons to expect a shorter life than average.

What the numbers leave out

• Longevity insurance. The pension cannot run out. The lump sum can, and averages hide that a fair share of people live well past their life expectancy.
• PBGC protection. Most private-sector defined benefit pensions are insured by the PBGC up to a maximum that depends on your age when payments start (2026 table: $6,154 a month at 62 and $7,790 at 65, straight life). It does not cover government or church plans, and the guarantee ends when you take the lump sum.
• Your spouse. A single-life pension stops when you die. A joint and survivor pension keeps paying your spouse; a lump sum leaves whatever is unspent to your spouse or heirs.
• Inflation. Without a COLA, every year of inflation trims the pension’s buying power; the lump sum can be invested for growth, with the risk that brings.
• Control. The lump sum is yours to invest, spend early or leave to heirs, and you carry the investment and spending risk.

Taxes and rollovers

A lump sum moved by direct rollover to an IRA or another employer plan is not taxed now and has nothing withheld. Paid to you, the plan must withhold 20% for federal income tax even if you roll it over within 60 days (to roll over all of it you replace the 20% from other money). What you keep is ordinary income, and under 59½ a 10% additional tax may apply unless an exception does: for employer plans, one is leaving the job in or after the year you turn 55 (50 for qualified public safety employees). That exception does not apply to IRAs, so money rolled into an IRA loses it. Monthly pension payments are taxed as income in the year you receive them (fully, if you made no after-tax contributions), and federal tax is generally withheld from them like wages.

How plans set the lump sum

Defined benefit plans may not pay less than the present value of your pension worked out with the IRS minimum present value interest rates (corporate bond segment rates) and the IRS mortality table (26 U.S.C. 417(e)(3)). When those rates rise, lump sums shrink, which is why offers can change from one year to the next. This calculator uses the SSA population table and your own return, so its implied rate is a check on the offer, not the plan’s own calculation.

Frequently asked questions

How do I compare a pension lump sum with monthly payments?
Work out the interest rate the pension is paying you: the rate at which the monthly payments you can expect to receive are worth the same as the lump sum today. If you could earn more than that rate on the lump sum, safely and after costs, the lump sum comes out ahead on paper; if not, the pension does. For a man of 62 offered $111,000 or $911 a month for life with no cost-of-living increase, the pension pays about 7.1% a year using the SSA life table (8.0% for a woman). Then weigh what the maths leaves out: the pension cannot run out however long you live, while the lump sum gives you control and can be left to heirs.

What interest rate is my pension paying me?
Enter the lump sum and the monthly amount above. We find the discount rate at which the payments, each weighted by the chance you are alive to receive it (SSA 2023 period life table (2026 Trustees Report)), add up to the lump sum. We also show the rate if you simply live to your average life expectancy. Plans set lump sums with IRS interest rates and an IRS mortality table (26 U.S.C. 417(e)), so if the rate we show is high, the offer is low against those, and the reverse.

What is the break-even age for a pension lump sum?
The age when the monthly payments you have received add up to the lump sum. $111,000 at $911 a month takes 122 payments, so from 62 the break-even is 72 years 1 month. That ignores what the lump sum could earn: invested at 5% and paying yourself $911 a month, it lasts to 75 years 11 months, which is the break-even age once growth is counted. SSA’s 2023 period table gives a 62-year-old man 20.29 more years on average and a woman 23.08.

How is a pension lump sum taxed, and can I roll it over?
A lump sum paid straight to an IRA or another employer plan (a direct rollover) is not taxed now and has no tax withheld. If the plan pays it to you, it must withhold 20% for federal income tax, even if you roll it over within 60 days; to roll over the full amount you then make up the 20% from other money. Any taxable part you keep is ordinary income, and if you are under 59½ a 10% additional tax may apply unless an exception does, such as leaving the employer in or after the year you turn 55 (that exception covers employer plans, not IRAs). Monthly pension payments are taxable income in the year you receive them, unless you made after-tax contributions.

Is my pension guaranteed if I keep the monthly payments?
For most private-sector defined benefit plans, the Pension Benefit Guaranty Corporation (PBGC) insures benefits up to a legal maximum if the plan fails. For plans ending in 2026 the maximum for a straight-life pension starting at 65 is $7,790 a month, and at 62 it is $6,154 (2027 table: $8,114 and $6,410). Most pensions are well below these limits. PBGC does not insure plans of governments or church groups, or 401(k)-type plans, and its guarantee ends once you take a lump sum.

Should I choose a joint and survivor pension?
If you are married, a defined benefit plan must pay a qualified joint and survivor annuity (your spouse keeps 50% to 100% of the payment for life after you die) unless you and your spouse agree in writing to another form, with the spouse’s consent witnessed by a notary or plan representative. The joint pension is usually lower each month than the single-life one. Choose the joint option above, with your spouse’s age and the survivor share, and enter the joint monthly amount your plan quotes.

Does a pension without a COLA lose value?
Yes, in buying power. Most private pensions pay the same dollar amount for life. At 2.5% inflation, $911 a month is worth about $552 in today’s money by 82 years 3 months, the average life expectancy of a 62-year-old man: 39% less. Enter a COLA if your plan has one; it raises the interest rate the pension is paying you.

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