# Pension Calculator

> Compare a pension lump-sum offer with a monthly pension: present value, break-even time and the return the pension effectively pays you.

Category: Finance · Applies to: Worldwide · Last updated: 2026-10-29
Interactive calculator: https://calculators.geekmidst.com/calculators/pension-calculator

When a pension offers a lump sum instead of monthly payments, compare the lump sum with the present value of the payments: what they are worth today at the return you could earn yourself.

Also called: Pension lump sum calculator, Pension buyout calculator.

## Inputs
- Lump sum offered (default 200000)
- Monthly pension instead (default 1000)
- Years you expect to receive it (unit years; default 20)
- Yearly pension increase (unit %; default 0; optional)
- Return you could earn on the lump sum (unit %; default 5)
- Currency

## Results
- Present value of the pension
- Pension value minus lump sum
- At this return
- Return the pension effectively pays
- Total pension payments
- Years until payments equal the lump sum
- Simple break-even
- Break-even counting investment return

## Formula

```
PV = Σ Payment_m ÷ (1 + i)^m for m = 1…n, with i = (1 + r)^(1/12) − 1;  with no increases PV = Payment × (1 − (1 + i)^−n) ÷ i
```

Where:
- Payment_m: pension in month m (raised each year by the increase you enter)
- r: yearly return you could earn on the lump sum
- n: number of monthly payments

## Worked example
1. Monthly rate i = 1.06^(1/12) − 1 = 0.4868%; n = 20 × 12 = 240 payments.
2. PV = 1,000 × (1 − 1.004868^−240) ÷ 0.004868 = 141,384.31.
3. Difference = 141,384.31 − 200,000 = −58,615.69, so the lump sum is worth more at 6%.
4. Simple break-even: 200,000 ÷ 1,000 = 200 months ≈ 16.67 years.

**Result:** If you could earn 6% a year, $1,000 a month for 20 years is worth about $141,400 today, so a $200,000 lump sum is the better deal on these numbers.

## What the result means

The implied return is the key number: it is what you would need to earn on the lump sum, every year, to match the pension. If that is above what you could safely earn, the pension is better value. The pension also insures you against living longer than expected, which a lump sum does not.

## Assumptions and limits
- Payments are made at the end of each month for the number of years you enter, then stop.
- The yearly increase, if any, applies from the start of each new year of payments.
- The return on the lump sum is constant and after any fees.
- Taxes on the lump sum and on pension income are not included and often differ.
- Survivor benefits, plan insurance and the risk of the plan failing are not modelled.
- Life expectancy is uncertain; try a few values.

## Questions

### Why not just compare total payments with the lump sum?

Money received later is worth less than money today because the lump sum could be invested. Present value accounts for that; the simple break-even does not.

### What discount rate should I use?

A realistic after-fee return on what you would actually do with the lump sum. A safe bond yield is a sensible lower bound; using a high stock-market return flatters the lump sum.

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_Returns are illustrations at a constant rate, not predictions or guarantees. Investments can lose value. This is not investment advice._

Source: GM¹X CalcVerse — https://calculators.geekmidst.com/calculators/pension-calculator