Pension Annuity Payout Calculator
When choosing between a pension lump sum and an annuity payout, you need to know what the stream of future payments is worth in today's dollars. This calculator uses the present value of an ordinary annuity formula to convert a series of equal periodic payments into a single equivalent lump-sum value at the chosen discount rate. If the lump sum your pension plan is offering you is higher than this present value, the lump sum is more generous. If it is lower, the annuity payments represent better value at your assumed return rate.
Present value of annuity formula
PV = PMT * [1 - (1 + r)^(-n)] / r
where r = annual rate / payment frequency, n = years * frequency
PMT is the payment per period, r is the periodic interest rate, and n is the total number of payment periods. When r equals zero, PV equals PMT times n (simple sum). This is an ordinary annuity formula (payments at end of period).
Using this calculator
- For monthly pension payments, select "Monthly," enter the monthly payment amount, and the calculator adjusts the rate and period count automatically.
- The present value rises as the discount rate falls: lower rates make future payments more valuable today.
- Total undiscounted payments show the raw dollar total you would receive if payments continued as specified, before accounting for the time value of money.
- Compare the PV result against any lump-sum offer from your pension plan to determine which represents greater value at your assumed rate of return.
- Consult the DOL EBSA pension benefit guarantee resources and a fee-only financial advisor before making an irrevocable pension election.
Frequently asked questions
What does present value of an annuity mean?
The present value (PV) of an annuity is the lump-sum amount today that is financially equivalent to receiving a series of equal payments in the future, given a specific discount rate. It reflects the time value of money: a dollar received today is worth more than a dollar received in the future.
How is the present value of a pension annuity calculated?
PV = payment * [1 - (1 + r)^(-n)] / r, where r is the periodic interest rate and n is the number of payment periods. For monthly payments, divide the annual rate by 12 for r and multiply years by 12 for n.
What discount rate should I use for a pension?
The appropriate discount rate depends on your purpose. Pension plan actuaries typically use rates tied to high-quality corporate bond yields as prescribed by the IRS under IRC Section 417(e). For personal comparison of a lump sum vs annuity, you might use your expected investment return rate.
Should I take the lump sum or annuity from my pension?
This depends on your health, longevity expectations, investment skill, other income sources, and tax situation. An annuity provides guaranteed income for life and protects against outliving your savings. A lump sum offers flexibility and potential for higher investment returns but carries investment risk.
What is the difference between a life annuity and a period-certain annuity?
A life annuity pays as long as you live. A period-certain annuity pays for a fixed number of years regardless of whether you survive. This calculator models period-certain payments. Life annuity valuation additionally requires actuarial life expectancy tables.
Official sources
- DOL EBSA: Pension and Health Benefits After a Job Change
- IRS: Minimum Present Value Requirements for Defined Benefit Plans
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.