Compare a pension lump sum offer against the monthly annuity option using probability-weighted NPV, internal rate of return, and break-even analysis. Models single-life and joint-and-survivor options.
| Age | Survival % | Annuity Payment (gross) | Expected (prob-wgtd) | Lump Withdrawal | Lump Balance |
|---|---|---|---|---|---|
| 62 | 100.0% | $50,400 | $50,400 | $50,400 | $742K |
| 63 | 98.8% | $50,400 | $49,794 | $50,400 | $733K |
| 64 | 97.5% | $50,400 | $49,147 | $50,400 | $723K |
| 65 | 96.1% | $50,400 | $48,459 | $50,400 | $713K |
| 66 | 94.7% | $50,400 | $47,725 | $50,400 | $703K |
| 67 | 93.1% | $50,400 | $46,941 | $50,400 | $691K |
| 68 | 91.5% | $50,400 | $46,105 | $50,400 | $679K |
| 69 | 89.7% | $50,400 | $45,211 | $50,400 | $667K |
| 70 | 87.8% | $50,400 | $44,257 | $50,400 | $653K |
| 71 | 85.8% | $50,400 | $43,236 | $50,400 | $639K |
| 72 | 83.6% | $50,400 | $42,143 | $50,400 | $624K |
| 74 | 78.8% | $50,400 | $39,727 | $50,400 | $591K |
| 76 | 73.4% | $50,400 | $36,979 | $50,400 | $554K |
| 78 | 67.2% | $50,400 | $33,853 | $50,400 | $512K |
| 80 | 60.2% | $50,400 | $30,335 | $50,400 | $466K |
| 82 | 52.5% | $50,400 | $26,439 | $50,400 | $413K |
| 84 | 44.1% | $50,400 | $22,205 | $50,400 | $354K |
| 86 | 35.2% | $50,400 | $17,759 | $50,400 | $288K |
| 88 | 26.5% | $50,400 | $13,346 | $50,400 | $213K |
| 90 | 18.4% | $50,400 | $9,288 | $50,400 | $130K |
| 92 | 11.7% | $50,400 | $5,900 | $50,400 | $36K |
| 94 | 6.7% | $50,400 | $3,378 | $0 | $0 |
| 96 | 3.4% | $50,400 | $1,729 | $0 | $0 |
| 98 | 1.6% | $50,400 | $792 | $0 | $0 |
| 100 | 0.7% | $50,400 | $328 | $0 | $0 |
When a pension plan offers a lump sum buyout, the decision comes down to one question: does the lump sum invested at a realistic return produce more than the annuity stream after probability-weighting both for longevity? IRS Section 417(e) requires plans to calculate lump sums using a present-value methodology with prescribed segment rates, which has historically favored employers when rates were low. As rates rose in 2022-2024, many lump sum offers shrank by 20-30% relative to the underlying annuity value.
This calculator uses the 2021 SSA Period Life Table to compute survival probabilities year by year. Each year's annuity payment is weighted by the probability you (and your spouse, for joint options) will be alive to receive it. The lump sum path assumes a tax-deferred rollover to an IRA, growth at your specified return, and matched annual withdrawals so the comparison is apples-to-apples.
Three numbers tell you what to do. The NPV delta shows whether the annuity or the lump sum has higher present value at your discount rate. The implied internal rate of return (IRR) shows what investment return the annuity is implicitly paying — if you think you can beat that return after-tax and after-fees, the lump sum wins. The break-even age shows when cumulative expected annuity payments equal the lump sum.
Joint and survivor options are critical for married couples. A 50% J&S option typically reduces the monthly payment by 10-15% but continues paying half to the surviving spouse for life. A 100% J&S option reduces it by 18-25% and pays the full amount to the survivor. These calculations probability-weight both lives so the J&S option doesn't get unfairly penalized in the comparison.
Inflation matters a lot. Most private-sector pension annuities have no COLA — that fixed monthly check loses purchasing power every year. Federal civilian and military pensions typically do have COLA. Set the COLA field accordingly. With 0% COLA and 3% inflation, a $4,000 monthly check is worth $2,200 in real terms 20 years later.