Compare lump sum vs annuity pension options
Decide between taking a lump sum or a monthly annuity from your pension plan using our free pension calculator. Enter your current age, retirement age, lump sum value, monthly pension amount, and life expectancy to compare total lifetime values and find the break-even age.
Choosing between a pension lump sum and a lifetime annuity is one of the most significant financial decisions you'll make in retirement. Our pension calculator helps you compare both options side by side, taking into account your age, life expectancy, and the time value of money.
The calculator assumes you could invest a lump sum at a 5% annual return, providing a baseline comparison against the guaranteed income stream of a monthly annuity. Consider factors like investment risk, inflation protection, and survivor benefits when making your final decision.
The annuity total is the monthly payment multiplied by the total number of payments expected. The lump sum is grown at a 5% annual rate until retirement and then drawn down. The option with the higher total value is recommended.
The break-even age is the point at which cumulative annuity payments exceed the value of the invested lump sum. Living past this age makes the annuity the better choice.
No, tax treatment of lump sums versus annuity income varies. Consult a tax professional to understand the tax implications of each option.
With a lump sum, the remaining value passes to your heirs as part of your estate. With a life-only annuity, payments typically stop at death. Many pensions offer survivor benefit options, but they usually come with reduced monthly payments.
Yes, inflation can significantly erode the purchasing power of a fixed annuity over time. A lump sum that is invested may have better potential to keep pace with inflation, depending on your investment strategy.
If you have a shorter life expectancy due to health concerns, the lump sum option is typically more advantageous, as you may not live long enough for cumulative annuity payments to exceed the lump sum value.