Pension Calculator
Annual and monthly pension from years of service, final average salary and a multiplier, plus the survivor option and the lump-sum equivalent.
Pension Calculator: with the default inputs, annual pension is $51,000.
What the plan credits, which may differ from years employed.
Most plans average your highest three or five consecutive years.
From your plan document. State and local plans commonly use 1.5–2.5%; FERS uses 1% (1.1% at 62 with 20 years).
How long you assume payments run. This drives the lump-sum comparison more than any other input.
A survivor benefit is paid for by reducing your own pension.
Plan-specific and actuarial — take it from your plan's election form. 5–15% is common for a 50% option.
Many private pensions have none at all; most public plans have some. Zero is the honest default for a corporate plan.
After any survivor reduction.
- Monthly pension
- $4,250
- Annual pension before the survivor reduction
- $51,000
- Annual benefit to your survivor
- $0
- Share of final salary replaced
- 60%
- Lump-sum equivalent of the pension
- $797,795Present value of the payments to your planning age at the discount rate.
- Total paid to your planning age
- $1,428,000
- Offer minus the pension's value
- $0
- Return the lump sum must earn to match the pension
- 0%
- Pension or lump sum?
- No lump sum entered. At a 5% discount rate the pension stream is worth $797,795 today.
- Age the pension overtakes the lump sum
- —Ignoring investment returns — the simple payback age.
Assumptions
- The benefit formula is the standard defined-benefit form: credited service × multiplier × final average salary. Your plan's multiplier, averaging period and vesting rules are inputs or must be checked against the plan document — nothing is assumed.
- The survivor reduction is a labelled input because plans set it actuarially; no factor is hard-coded.
- Early- and late-retirement adjustment factors, Social Security offsets and level-income options are not modelled.
- The lump-sum equivalent discounts payments taken at the start of each year, from the start age to your planning age. Longevity beyond that age is worth nothing in this model, which understates a real pension.
- The implied return is solved by bisection on the discount rate that equates the offer to the payment stream.
- Taxes are excluded. Pension income is ordinary income federally; several states exempt part or all of it.
- The multiplier example of 1% (1.1% at age 62 with 20 or more years of service) is the FERS basic annuity formula published by OPM; it is illustrative, not a default.
| Age | Annual payment | Cumulative | Present value |
|---|---|---|---|
| 62 | $51,000 | $51,000 | $51,000 |
| 63 | $51,000 | $102,000 | $48,571 |
| 64 | $51,000 | $153,000 | $46,259 |
| 65 | $51,000 | $204,000 | $44,056 |
| 66 | $51,000 | $255,000 | $41,958 |
| 67 | $51,000 | $306,000 | $39,960 |
| 68 | $51,000 | $357,000 | $38,057 |
| 69 | $51,000 | $408,000 | $36,245 |
| 70 | $51,000 | $459,000 | $34,519 |
| 71 | $51,000 | $510,000 | $32,875 |
| 72 | $51,000 | $561,000 | $31,310 |
| 73 | $51,000 | $612,000 | $29,819 |
How this is worked out
The formula
Single-life pension = years of credited service × multiplier × final average salary Pension after a survivor election = single-life pension × (1 − reduction factor) Survivor's benefit = reduced pension × survivor percentage Lump-sum equivalent = P × [ 1 − ((1+g)/(1+d))^n ] ÷ [ 1 − (1+g)/(1+d) ], g = COLA, d = discount rate, n = years of payments Implied return = the discount rate at which the lump sum offered equals that present value
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Years of credited service
- What the plan credits, which may differ from years employed.from 0 to 60 · defaults to 30
- Final average salary
- Most plans average your highest three or five consecutive years.in dollars · 0 or more · defaults to 85000
- Benefit multiplier
- From your plan document. State and local plans commonly use 1.5–2.5%; FERS uses 1% (1.1% at 62 with 20 years).a percentage · from 0 to 10 · defaults to 2
- Age the pension starts
- A number.from 40 to 80 · whole numbers only · defaults to 62
- Plan to age
- How long you assume payments run. This drives the lump-sum comparison more than any other input.from 41 to 120 · whole numbers only · defaults to 90
- Survivor option
- A survivor benefit is paid for by reducing your own pension.Single life — nothing continues to a survivor · 50% joint and survivor · 75% joint and survivor · 100% joint and survivor
- Reduction for the survivor option
- Plan-specific and actuarial — take it from your plan's election form. 5–15% is common for a 50% option.a percentage · from 0 to 60 · defaults to 10
- Annual cost-of-living increase
- Many private pensions have none at all; most public plans have some. Zero is the honest default for a corporate plan.a percentage · from 0 to 15 · defaults to 0
- Discount rate for the lump-sum equivalent(under More options)
- The return you could earn on a lump sum. Higher discount rate, lower present value.a percentage · from 0.1 to 20 · defaults to 5
- Lump sum you've been offered(under More options)
- Leave at zero if there's no buyout on the table.in dollars · 0 or more · defaults to 0
What you get back
- Annual pensionmain answer
- After any survivor reduction.
- Monthly pension
- Annual pension before the survivor reduction
- Annual benefit to your survivor
- Share of final salary replaced
- Lump-sum equivalent of the pension
- Present value of the payments to your planning age at the discount rate.
- Total paid to your planning age
- Offer minus the pension's value
- Return the lump sum must earn to match the pension
- Pension or lump sum?
- Age the pension overtakes the lump sum
- Ignoring investment returns — the simple payback age.
What this assumes
- The benefit formula is the standard defined-benefit form: credited service × multiplier × final average salary. Your plan's multiplier, averaging period and vesting rules are inputs or must be checked against the plan document — nothing is assumed.
- The survivor reduction is a labelled input because plans set it actuarially; no factor is hard-coded.
- Early- and late-retirement adjustment factors, Social Security offsets and level-income options are not modelled.
- The lump-sum equivalent discounts payments taken at the start of each year, from the start age to your planning age. Longevity beyond that age is worth nothing in this model, which understates a real pension.
- The implied return is solved by bisection on the discount rate that equates the offer to the payment stream.
- Taxes are excluded. Pension income is ordinary income federally; several states exempt part or all of it.
- The multiplier example of 1% (1.1% at age 62 with 20 or more years of service) is the FERS basic annuity formula published by OPM; it is illustrative, not a default.
About this calculator
A defined-benefit pension is almost always the same arithmetic: years of credited service × a multiplier × your final average salary. Thirty years at 2% of an $85,000 final average is $51,000 a year for life. The formula is the easy part. The hard parts are the two elections you make once and cannot undo — the survivor option, and whether to take a lump sum instead.
The survivor election
Electing a joint-and-survivor benefit lowers your own pension permanently, in exchange for continuing a share of it to a spouse after you die. Plans price the reduction actuarially, so the factor depends on both ages and the plan's assumptions; 5–15% is a common range for a 50% option, but the only number that matters is the one on your plan's election form. Enter that. The choice is genuinely a life-insurance decision in disguise: compare the annual cost of the reduction with the premium on a policy that would replace the same income, and remember that a policy can lapse while a survivor annuity cannot.
The lump sum
A buyout offer is a bet on three things at once: how long you live, what return you can earn, and whether you will leave the money invested. The calculator discounts the payment stream to a present value at the rate you set, and — more usefully — solves for the return the lump sum would have to earn, every year, to reproduce the pension to your planning age. If that number comes back above 7%, the offer is asking you to take equity risk with money you intend to spend, which is precisely the risk the pension existed to remove.
Also weigh what the two do under stress. A private pension in payment is insured by the Pension Benefit Guaranty Corporation up to statutory limits if the plan fails. A lump sum, once rolled over, is insured by nobody.
How to use it
Take the multiplier and the definition of final average salary from your plan document — some plans average the highest three consecutive years, others five, and some use a career average, which produces a much smaller benefit for the same multiplier. Set Plan to age honestly: this single input moves the lump-sum comparison more than any other, because a pension is worth more the longer you live. Under More options, enter any buyout offer.
Where this breaks down
Early-retirement reductions and late-retirement enhancements are not modelled — most plans cut the benefit substantially for starting before a normal retirement age, and the calculator applies your multiplier flat. Nor are Social Security offsets and level-income options, which some plans use to smooth income before age 62. Taxes are excluded: pension income is ordinary income federally, but a number of states exempt some or all of it. And COLA defaults to zero because most private plans have none; public plans usually do, and that difference alone can change the lump-sum answer.
Frequently asked questions
▸How is a pension calculated?
Years of credited service × a benefit multiplier × final average salary. A 2% multiplier with 30 years of service replaces 60% of final average pay. Check your plan document for both the multiplier and the averaging period — three-year and five-year averages give different answers.
▸Should I take the lump sum or the pension?
Compare the return the lump sum must earn to reproduce the pension against what you could realistically earn on it. Below about 5% the lump sum is usually competitive; above 7% the pension is paying you a return you cannot safely replicate. Longevity, a spouse's needs and PBGC protection all argue for the pension.
▸How much does a survivor benefit cost?
A permanent reduction to your own pension, priced actuarially on both ages — commonly 5–15% for a 50% joint-and-survivor option and more for a 100% one. Your plan's election form gives the exact factor; nothing else should be trusted.
▸Why does the discount rate matter so much?
Present value falls as the discount rate rises. At 4% a $51,000 pension for 28 years is worth far more today than at 7%. Employers pick the rate that suits them when sizing buyouts, which is why solving for the implied return is more informative than accepting their number.
▸Is my pension protected if my employer fails?
Private single-employer defined-benefit plans are insured by the Pension Benefit Guaranty Corporation up to a statutory maximum that varies by the age you start benefits. Government and church plans are not covered by the PBGC, and a lump sum you have already taken is not covered at all.
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