The arithmetic favours the lump sum whenever you can reliably earn more than the annuity implies. The annuity buys protection against living a long time and against your own decisions, which the arithmetic cannot price.

Investmentretirement

Pension Lump Sum vs Annuity Calculator

A pension lump sum against the annuity offered instead, compared on present value and on how long you would need to live for the annuity to win. The discount rate you assume decides the answer.

Also called: should i take the lump sum or the pension, commute pension calculator.

Which is worth more

The lump sum is worth more

The lump sum is worth more. The annuity is worth ₹38,42,919 today against a 50,00,000 lump sum, a difference of ₹11,57,081. The annuity only wins if you live past 0 years.

Present value of the annuity

₹38,42,919

Total the annuity pays out

₹90,00,000

Difference in present value

₹11,57,081

Years to break even

Rate the annuity implicitly pays

5.15%

How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for India change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

An annuity is a stream of payments; a lump sum is money you could invest. Discounting the stream at what you could earn puts the two in the same units. The break-even is the year at which cumulative annuity payments exceed the lump sum grown at that same rate, which is a longevity question rather than a financial one. A higher assumed return favours the lump sum, and it is the assumption to test hardest.

present value = each annuity payment, escalated, discounted back to today

A: Annual annuity (currency)
g: Annual escalation (decimal)
r: Return you could earn instead (decimal)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a typical Indian offer

Lump sum offered: ₹50,00,000
Monthly annuity offered instead: ₹30,000
Years you expect to draw it: 25
Return you could earn on the lump sum: 8%
Annual increase in the annuity: 0%

Which is worth moreThe lump sum is worth more

3,60,000 a year for 25 years

Open this example

a zero discount rate makes it a plain sum

Lump sum offered: ₹50,00,000
Monthly annuity offered instead: ₹30,000
Years you expect to draw it: 25
Return you could earn on the lump sum: 0%
Annual increase in the annuity: 0%

Which is worth moreThe annuity is worth more

boundary: with no discounting the nominal total is the present value

Open this example

one year of annuity cannot beat a large lump sum

Lump sum offered: ₹50,00,000
Monthly annuity offered instead: ₹30,000
Years you expect to draw it: 1
Return you could earn on the lump sum: 8%
Annual increase in the annuity: 0%

Which is worth moreThe lump sum is worth more

degenerate case

Open this example

Method and limits

What it assumes

Payments continue for the full period entered, with no survivor benefit valued.

What it deliberately does not model

It does not price the insurance an annuity provides against outliving your money, which is most of its real value.
Tax treatment of the two differs sharply in most markets and is not applied.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Which should I take?: The arithmetic favours the lump sum whenever you can reliably earn more than the annuity implies. The annuity buys protection against living a long time and against your own decisions, which the arithmetic cannot price.