Pension or Lump Sum?: worked examples

1. A $2,500-a-month pension from 65, against a $400,000 lump sum invested at 5 percent and paying the same $2,500 a month: the lump sum runs out at 86. The pension pays $780,000 by 90.
2. At 7 percent the same lump sum holds through 90 with about $190,537 left. The break-even return for this offer, to 90, is 6.0% a year.
3. If the pension rises 2 percent a year, the lump sum has to keep up: it runs out at 82 at 5 percent, and the break-even return climbs to 8.1%.
4. The lump sum can be rolled to an IRA without tax; taken in cash it is taxable at once. The pension is taxable as it is paid. A survivor option on the pension lowers the monthly amount and changes the comparison for a couple; neither side of this tool models it.

Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.