How the comparison works
A pension buyout asks you to weigh two things that are not directly comparable: a single payment you can take today, and a stream of monthly checks stretching years into the future. Money in hand now is worth more than the same amount paid later, so the calculator converts the future payments into their value in today’s dollars before lining them up against the lump sum.
That conversion uses a discount rate — your assumed annual return on money you control. Each future payment is shrunk by how long you have to wait for it, then all the shrunk amounts are added together. The result, called the present value of the annuity, is what the monthly payments are worth right now under your assumptions.
Reading the result
The headline tells you which option is larger in present-value terms: keeping the monthly payments or taking the cash. The bar chart places the annuity’s present value beside the lump-sum offer so the gap is easy to see, and the difference figure shows how far apart they are.
A close result means the two options are roughly a wash and other factors should decide. A large gap in either direction is a stronger signal — but only as reliable as the discount rate and life expectancy you fed in.
Tips and caveats
The answer is sensitive to your assumptions, so it pays to test a few.
- Raising the discount rate lowers the annuity’s present value and favors the lump sum; lowering it does the opposite. Try a range, not a single guess.
- The years of payments is really a bet on longevity. Living longer than assumed makes the lifetime annuity more valuable than the model shows.
- A guaranteed monthly check carries no investment risk, while a lump sum you must invest yourself does — that security has real value beyond the math.
- Watch for inflation: a fixed pension loses purchasing power over decades unless it has a cost-of-living adjustment.
A note on scope
This is an educational estimate, not financial advice. It ignores taxes, survivor benefits, pension insurance protections, and the credit risk of the plan sponsor — all of which can swing a real decision. Consult a qualified financial advisor before committing to an irreversible buyout.
Formula
annuityPV = monthlyPension·12 · (1 − (1+r)^−years) / r, r = discountRate/100Frequently asked questions
- What discount rate should I use?
- Use a realistic long-term return you could earn on the lump sum, often 4–6%. A higher rate makes the lump sum look more attractive.