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Compare taking your pension as a lifetime annuity vs a lump sum. Uses present value (NPV) with your discount rate. Include COLA if your pension has cost-of-living adjustments.
NPV of Pension
$633,906.5
Lump Sum
$500,000
Recommendation
Pension
With $3,000/month pension, 2% COLA, 5% discount rate, from age 65 to 90, the NPV of the pension is $633,906.5. Compared to a $500,000 lump sum, the pension has higher present value.
Source: FinCalc server-rendered example using the same formulas as the interactive calculator.
NPV of Pension
$633,906.5
Lump Sum Offer
$500,000
Total Pension (nominal)
$1,153,090.79
NPV Break-Even Age
83
| Age | Annual Pension | Cumulative PV |
|---|---|---|
| 65 | $36,000 | $35,132.4 |
| 66 | $36,720 | $69,261.02 |
| 67 | $37,454.4 | $102,414.54 |
| 68 | $38,203.49 | $134,620.81 |
| 69 | $38,967.56 | $165,906.91 |
| 70 | $39,746.91 | $196,299.11 |
| 71 | $40,541.85 | $225,822.97 |
| 72 | $41,352.68 | $254,503.29 |
| 73 | $42,179.74 | $282,364.17 |
| 74 | $43,023.33 | $309,429.02 |
FinCalc AI
FinCalc AI
Suggested questions:
We compute the present value (NPV) of the pension stream using your discount rate. Each year's pension payment is inflated by COLA, then discounted back to today. If NPV exceeds the lump sum, the pension may offer more value; if the lump sum exceeds NPV, taking the lump sum may be better.
The discount rate represents your opportunity cost—what you could earn if the lump sum were invested. A higher rate favors the lump sum; a lower rate favors the pension. Your longevity and need for guaranteed income also matter beyond the math.
Data and assumptions align with official publications. For verification and current figures:
Compare the present value of the pension (using a discount rate) to the lump sum. If the pension has COLA increases, that adds value. A higher discount rate favors the lump sum; a lower one favors the pension. Your longevity, need for flexibility, and desire for guaranteed income also matter.
A common approach is your expected long-term investment return (e.g., 5–7%). If you assume 6%, that is the opportunity cost of the pension; the lump sum could theoretically earn 6% if invested. Use a rate that reflects your risk tolerance and investment assumptions.
Yes. A pension with a 2% COLA grows each year; a flat pension does not. Over 25 years, COLA can significantly increase total payments. The calculator applies COLA to each year's pension amount before discounting to present value.
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