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.
The lump sum is worth more. The annuity is worth $3,842,919.43 today against a 5,000,000 lump sum, a difference of $1,157,080.57. The annuity only wins if you live past 0 years.
An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.
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 United States 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)
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 · United States · 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.