Pension vs Lump Sum Calculator

Compare taking a monthly pension vs lump sum payout. Find the break-even age.

By Konstantin Iakovlev · Updated September 2026 · Source: IRS

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Break-Even Age

Age 82.3

Total Pension by 85

$1,038,418.68

Lump Sum Left at 85 (same income)

$0.00

Comparison

Monthly Pension (start)$3,000.00
Monthly Pension (age 85, with COLA)$4,637.94
Lump Sum Monthly Income (4% rule)$1,666.67
Total Pension (23 years)$1,038,418.68
Lump Sum Invested (23 years, nothing withdrawn)$1,909,874.83
Lump Sum After 4% Withdrawals$746,866.99

Recommendation

Pension appears betterPaying yourself the same income, the lump sum runs out at age 82.3

Use the Pension vs Lump Sum Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

Few retirement choices carry as much weight as taking a steady monthly pension versus a single lump sum payout. This tool lays the two side by side and pinpoints the break-even age: the age at which a lump sum, invested and drawn down to pay you exactly what the pension would, finally runs out. Live past that age and the pension was worth more; die before it and the lump sum was.

Behind the scenes, the lump sum earns the annual return you choose, compounded monthly, while each month the same amount the pension would pay comes out of it, rising each year by the pension's COLA. If the balance lasts to your life expectancy, the lump sum wins by whatever is left; if it hits zero first, the pension wins. Dividing the lump sum by the monthly payment gives a shortcut answer, but it ignores investment growth and understates how long the money lasts.

Several personal factors belong in this decision: how long you expect to live, how comfortable you are managing investments, and how much you value income you cannot outlive. Two pitfalls trip people up most often, namely ignoring how inflation erodes the buying power of a fixed pension and underestimating the market risk that comes with managing a lump sum yourself.

Example: John's Retirement Choices

  1. 1 John is retiring. His pension plan offers him a choice: a monthly pension of $3,000 with no cost-of-living increase (Pension COLA set to 0%) or a lump sum of $600,000. He is currently 65 years old. He estimates a conservative 4% annual rate of return if he invests the lump sum.
  2. 2 If John invests the $600,000 at 4% and pays himself $3,000 a month from it, the money lasts until about age 92.2. The shortcut of $600,000 / $3,000 = 200 months (age 81.7) ignores the interest the balance keeps earning, so it understates the lump sum by more than ten years.
  3. 3 At a planning age of 85 he would still have about $223,149 left, so the lump sum comes out ahead if he dies before roughly 92, and the pension comes out ahead if he lives longer.
  4. 4 This means if John expects to live past 92, the monthly pension could be more advantageous. If he prioritizes immediate control over a large sum or has a shorter life expectancy, the lump sum might be preferred, especially if he can achieve a higher investment return than the implicit rate of return offered by the pension.

Source: IRS · Last updated: September 2026

Frequently Asked Questions

How do I decide between pension and lump sum?
Compare the pension annual payment to what you could safely withdraw from the lump sum (typically 4%). If the pension pays $30,000/year and the lump sum is $500,000, the pension effectively yields 6%, which is usually the better deal. Also consider your health, other income sources, and need for flexibility.
What is the break-even age for pension vs lump sum?
The break-even age is when total pension payments equal the lump sum amount plus its investment growth. If you expect to live beyond the break-even age, the pension is usually better. If you have health concerns or family history of shorter lifespan, the lump sum may be preferable.
Can I roll a lump sum pension into an IRA?
Yes. A lump-sum pension distribution can be rolled directly into a Traditional IRA tax-free. This preserves the tax deferral and gives you control over investments and withdrawals. You can then convert portions to Roth if desired. Do not take a check directly, as 20% mandatory withholding applies.

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