Pension Calculator

Estimate defined benefit income & compare pension vs. lump sum

Pension Formula

Years × Multiplier% × Final Average Salary

Service & Salary
Benefit Multiplier
Retirement Details
Social Security Offset
Annual Pension Benefit
$37,500
based on your inputs
Your pension replaces 50.0% of salary. Combined with Social Security you should be well-positioned.
25 yrs × 2.0% × $75,000 = $37,500/yr
Estimated Retirement Income Sources
Pension Benefit
Annual Pension
$37,500
per year at retirement
Monthly Pension
$3,125
per month after retirement
Lump-Sum Equivalent
Commuted Value (20×)
$750,000
estimated portfolio equivalent
Replacement Rate
target ≥ 70%
50.0%
Quick Tips
Vesting
Most pensions require 5–10 years of service before you become fully vested. Check your plan documents.
COLA
Cost-of-living adjustments (COLA) protect your benefit from inflation. Not all plans include them — verify yours.
Your Pension Offer
Assumptions
The break-even age is when cumulative pension payments first exceed the lump sum invested at your assumed return rate.
Break-Even Age
—
enter values above
Lifetime Pension Value
—
to life expectancy
Projected IRA Value
—
lump sum at life expectancy
💡
Enter Both Values
Enter your monthly pension amount and lump sum offer above to see a recommendation.
Cumulative Pension vs. IRA Balance Over Time
Monthly Income Sources
Portfolio Withdrawals
Target
Total Monthly Income
—
all sources combined
Monthly Surplus
vs. your target
—
Monthly Income by Source
Income Source Monthly Amount
Pension —
Social Security —
Portfolio Withdrawals —
Other Income —
Total —
Pension
Social Security
Portfolio
Other

How to Use the Pension Calculator

1

Choose Your Formula Type

Select the pension formula that matches your plan: Final Average Salary (most common), Career Average, or Flat Dollar per year of service.

2

Enter Service & Salary

Input your years of service and final average salary (typically the average of your last 3–5 years). Enter the benefit multiplier — usually 1.5% to 2.5%.

3

Review Pension Benefit

See your annual and monthly pension benefit, the lump-sum equivalent value, and your income replacement rate. Adjust the SS offset if your plan reduces benefits when you collect Social Security.

4

Compare & Stack

Use Tab 2 to compare monthly pension vs. a lump-sum rollover and see the break-even crossover point. Use Tab 3 to build your full retirement income picture.

Pension Benefit Formulas

Final Avg Salary : Years × Multiplier% × Final Avg Salary
Career Average : Years × Multiplier% × Career Avg Salary
Flat Dollar : Years × Flat $ per Year × 12 months
Lump-Sum Equiv = Annual Pension × 20

Key Pension Terms

Defined Benefit (DB)
A pension plan that guarantees a specific monthly income based on a formula, regardless of investment performance. The employer bears all investment risk.
Benefit Multiplier
The percentage of salary earned for each year of service (e.g., 2% multiplier × 30 years = 60% of final salary).
Vesting Period
The time you must work before earning the right to pension benefits. Cliff vesting grants 100% at once; graded vesting increases gradually.
Final Average Salary
The average of your highest-earning years (usually the last 3 or 5 years) used in the pension formula. Working longer often increases this figure.
COLA (Cost-of-Living Adjustment)
An annual increase to protect pension benefits from inflation. Public sector pensions often include COLA; private sector plans often do not.
Lump Sum Commuted Value
A one-time payment offered instead of monthly benefits. The present value of your lifetime pension stream, calculated by the plan actuary.
Survivor Benefit
An option that reduces your monthly benefit in exchange for continuing payments to a spouse after your death. Important for married retirees.
SS Offset / Integration
Some pension plans reduce your benefit once you begin collecting Social Security, effectively integrating the two income sources.

Pension Calculation Examples

Public School Teacher — 30 Years
30 × 2% × $60,000 = $36,000/yr
Monthly benefit: $3,000/mo. Replacement rate: 60%. A solid base — supplement with 403(b) savings for full coverage.
Federal Employee (FERS) — 25 Years
25 × 1% × $95,000 = $23,750/yr
Monthly benefit: $1,979/mo. FERS pensions are lower but combined with Social Security and TSP create a robust three-legged retirement stool.
Police Officer — 20 Years, 3% Multiplier
20 × 3% × $80,000 = $48,000/yr
Monthly benefit: $4,000/mo. High multipliers in public safety plans reward early retirement. At 60% replacement after just 20 years, this is an excellent pension.
Union Worker — Flat Dollar Plan
30 yrs × $60/mo = $1,800/mo
Annual benefit: $21,600. Flat dollar pensions are common in trades and manufacturing. Simple to understand but often lower than formula-based plans.

Is a Pension Worth Staying at a Job For?

Defined benefit pensions have become rare — only about 15% of private sector workers have access to one today, compared to over 80% in the 1970s. If you have a pension, you have something genuinely valuable: a guaranteed lifetime income stream that doesn't depend on market returns or your investment decisions.

The decision to stay or leave often hinges on vesting. If you're 3 years from full vesting and your pension at that point would be worth $200,000–$400,000 in lump-sum equivalent terms, the math strongly favors staying — if the job is otherwise acceptable. The value of guaranteed income also rises significantly with each year of service you add.

However, a pension shouldn't be the only factor. If another opportunity offers a $50,000 salary increase over the same period, that extra income invested in a 401(k) might outpace the pension gain. The real question is: what is the annual pension increase worth in today's dollars for each additional year worked?

Use the Lump Sum tab to see how your pension compares to investing the equivalent amount yourself. If the break-even age is 75 and you expect to live to 85, the pension has clear value. If break-even is 90, the lump sum may be more attractive — especially if you have health concerns or want to leave an estate.

Finally, consider survivor benefits, COLA protection, and healthcare. Many pension plans include subsidized retiree healthcare, which can be worth hundreds of thousands of dollars over a retirement lifetime. Factor that in before walking away from a plan.

Frequently Asked Questions

What is the difference between a defined benefit and defined contribution plan?

A defined benefit (DB) plan guarantees a specific monthly income in retirement based on a formula. The employer funds and manages the investments. A defined contribution (DC) plan like a 401(k) specifies how much you contribute but not what you'll receive — your balance depends on contributions and investment performance. DB plans shift investment risk to the employer; DC plans shift it to you.

How does vesting work for pensions?

Vesting determines when you own the employer-contributed benefits. Cliff vesting means you get 0% until a threshold (e.g., 5 years) then 100% immediately. Graded vesting increases your ownership percentage each year (e.g., 20% per year over 5 years). You always own your own contributions immediately, but employer contributions vest on a schedule.

Should I take the monthly pension or the lump sum?

Monthly payments provide guaranteed income regardless of how long you live, protecting against longevity risk. A lump sum gives flexibility and estate planning options but requires you to manage investments. The break-even analysis shows at what age cumulative payments exceed the lump sum invested at your assumed rate of return. If you expect to outlive break-even by many years, monthly payments are typically superior.

What is a COLA and do all pensions have one?

A Cost-of-Living Adjustment (COLA) increases pension payments annually to offset inflation. Public sector pensions often include automatic COLAs tied to CPI. Most private sector pensions do not include COLAs, meaning inflation gradually erodes purchasing power. A 3% annual inflation rate halves the real value of a fixed pension in about 23 years.

What are survivor benefits and should I elect them?

A survivor benefit (joint and survivor option) reduces your monthly payment in exchange for continuing payments to your spouse after your death. If your spouse depends on your income or has a longer life expectancy, electing survivor benefits is often wise. The cost is a reduction of 10–15% of your monthly benefit — a relatively small price for lifetime income security for your spouse.

How does the pension calculator estimate the lump-sum equivalent?

This calculator uses a 20× multiplier as a simplified estimate (your annual benefit × 20). This approximates a 5% annuity payout rate over 20 years. Actual lump-sum commuted values are calculated by actuaries using mortality tables and current interest rates — the official value from your plan administrator may differ significantly.

Can I have both a pension and a 401(k)?

Yes. Many employers offer both. Some newer employees are placed in a hybrid plan with a smaller DB pension plus an employer-matched 401(k). Having both reduces risk — the pension provides a guaranteed floor while the 401(k) provides growth potential. The Retirement Income Stack tab helps you see how all sources combine.

What is an SS offset and how does it affect my pension?

Some pension plans (particularly those that historically did not participate in Social Security) reduce your pension benefit when you begin collecting Social Security. This is called Social Security integration or offset. The Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) are federal rules that affect some public pensions. Enable the SS Offset toggle and enter your offset amount to see the impact on your benefit.