Pension vs Lump Sum
Should you take the monthly pension or a lump sum buyout? Compare present value and break-even age.
FAQ
What is "present value"?
The current dollar value of a future stream of payments, discounted by the rate you could earn investing that money. $1 received in 20 years is worth less than $1 today because you could invest the $1 today and grow it.
What's break-even age?
The age at which the total payouts from the pension equal the lump sum (invested at the assumed return rate). If you expect to live past this age, the pension wins; below it, the lump sum wins.
Why does COLA matter so much?
Without COLA (cost-of-living adjustment), a $2,500/month pension today is worth significantly less in 20 years after inflation. With 2-3% COLA, your purchasing power is preserved. Most private pensions lack COLA.
What about PBGC?
The Pension Benefit Guaranty Corporation guarantees private pensions up to a maximum (~$7,000/month for someone retiring at 65 in 2026). If your pension is below that, the guarantee is meaningful even if your former employer fails.
Disclaimer. Major financial decision. Consult a fee-only fiduciary financial advisor. This tool simplifies — doesn't model sequence-of-returns risk, spousal benefits, tax treatment of lump sum withdrawals, or estate planning.