Pension Lump Sum vs Annuity Calculator

The Pension Lump Sum vs Annuity Calculator compares a lump sum with the present value of monthly annuity payments. It discounts payments using an expected return rate, projects the selected years, and can increase payments annually with a COLA assumption.

$\text{Annuity present value}=\sum_{m=1}^{12Y}\frac{\text{Monthly payment}_m}{(1+r)^m}$

The result shows the absolute difference and labels the larger modeled present value. Equal values are labeled Lump Sum by the implementation.

Example

Compare a $300,000 lump sum with$2,000 monthly payments for 20 years at a 4% expected return. The calculator discounts each monthly payment and returns the annuity present value for comparison.

Questions

Does this model longevity risk?

Only through the years-to-live input. It does not estimate actual life expectancy or health outcomes.

What does COLA do?

It increases the monthly annuity payment once each year by the entered percentage.

Is the better-option label advice?

No. Taxes, liquidity, guarantees, inflation, fees, survivor benefits, and personal risk tolerance are not fully modeled.

Limitations

Use the result as a scenario comparison and review pension documents with a qualified financial professional.