How is a pension calculated?

Most defined-benefit pensions use: average salary × years of service × a benefit multiplier (often 1%–2.5% per year of service).

Should I take a lump sum or monthly payments?

Monthly payments provide guaranteed lifetime income; a lump sum offers control and inheritability but investment and longevity risk. This tool compares the present value of the monthly stream to a lump-sum offer.

What is the benefit multiplier?

It is the percentage of salary credited per year of service. A 2% multiplier with 30 years of service replaces 60% of your salary basis.

Most pension income is taxed as ordinary income at the federal level and often at the state level. This estimate is pre-tax.

Is my pension protected?

Many private pensions are insured by the PBGC up to limits; public pensions vary by jurisdiction. Check your specific plan.

Pension Calculator

Estimate your annual pension from a defined-benefit formula and compare a monthly payout against a lump sum.

Your pension

Average salary (basis)

Years of service Multiplier / year

Retirement age Life expectancy

Discount rate

Lump-sum offer

Estimated annual pension

/ month

Lifetime total

Present value

How to Use

1
Enter your salary basis. Add the average salary your pension is based on (often final or highest years).
2
Add service & multiplier. Enter years of service and your plan's benefit multiplier per year.
3
Set retirement age. Add your retirement age and expected lifespan.
4
Compare options. See annual/monthly pension, lifetime total, and a lump-sum comparison.

Calculation Method

The annual defined-benefit pension uses the standard formula:

Annual = average_salary × years_of_service × multiplier%

The present value of the monthly stream is the present value of an annuity for your payout years at the discount rate: PV = A × [1 − (1 + r)⁻ⁿ] / r. Compare that PV to any lump-sum offer.

Examples

Example. $80,000 average salary, 30 years of service, 1.5% multiplier = $80,000 × 30 × 1.5% = $36,000/year ($3,000/month). Over 22 years that is $792,000 in total payments.

Frequently Asked Questions

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Disclaimer: Calculations are projections based on the assumptions you provide and are for informational purposes only. They are not financial, tax, or investment advice. Investment returns are not guaranteed. Consult a Certified Financial Planner (CFP) before making retirement decisions.

Data source: Standard defined-benefit pension formula. Present value uses your chosen discount rate.