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Pension or Lump Sum?

Assumptions on sliders · method reviewed September 7, 2026

Compares taking a pension as monthly checks for life with taking the lump sum offered instead. About

In plain words. Some employers offer a choice: a fixed monthly pension for as long as you live, or one lump sum now. This tool imagines investing the lump sum and paying yourself the same monthly amount from it, and shows the age the lump sum would run out at the return you choose. It also finds the return the lump sum would need to earn to last as long as the pension.

Why it matters. The offer letter gives two numbers that are hard to compare. The break-even return turns them into one: earn more than it, and the lump sum wins; earn less, and the pension wins.

An example. A pension of $2,500 a month against a $400,000 lump sum: invested at five percent and paying the same $2,500, the lump sum runs out at about 86. To last to 90 it would need to earn about six percent a year.

Where it stops. It leaves out tax, a survivor option that keeps paying a spouse, the insurance that backs private pensions, and inflation on the withdrawals beyond the pension increase you set. Your health and your spouse's are the other half of the decision. Everything it leaves out.

$

The monthly amount on the plan's offer, before tax.

$

The one-time amount the plan offers in place of the monthly pension.

Most private pensions have none. Many public ones do.

Invested and paying you the pension, the lump sum runs out at age
86
The pension keeps paying after that, for as long as you live, and would have paid $780,000 in all by 90. The lump sum would have to earn 6.0% a year to keep up with the pension to 90.
The invested lump sum paying you the pension, ages 65 to 90Two lines by age. One is the lump sum's balance while it pays $2,500 a month at a 5% return. The other is the total the pension has paid so far. The balance reaches zero at 86.$0$200k$400k$600k$800k6571788490Runs out at 86Lump sum balancePension paid so far

The break-even return, 6.0%, sums up the comparison. Earn more than that on the lump sum and it outlasts the pension to 90. Earn less and the pension pays more. What the number leaves out is who carries the risk. A pension is the plan's promise to pay for as long as you live. A lump sum is your problem in a bad decade, and your heirs' asset in a good one.

This compares one person's pension with the lump sum in future dollars, before tax, at a steady return. It leaves out survivor benefits, the federal insurance limit on pension payments, taxes on either side, and any rise in the withdrawals beyond the pension increase you set. Hypothetical; educational, not advice.

This is a simplified model, not your actual tax return or plan. It only knows what you type in, leaves out rules that may apply to you, and cannot weigh the other facts and trade-offs a real decision depends on. Before you act, talk with a professional who knows your whole situation.

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.