Should I take the pension lump sum or monthly payments?

There's no universal answer — it depends on your life expectancy, investment confidence, other income sources, and whether you have a spouse who needs survivor benefits. The monthly annuity provides guaranteed income for life but stops at death (or reduces for a survivor). The lump sum gives you control and potential for growth but carries investment risk and requires discipline.

How is a pension lump sum calculated?

Pension lump sums are calculated using IRS-mandated segment rates and mortality tables. The lump sum represents the present value of your future monthly payments — higher interest rates produce smaller lump sums (since less money today can grow to cover future payments), while lower rates produce larger lump sums. Timing your decision based on rate trends can significantly affect the offer.

Can I roll a pension lump sum into an IRA?

Yes. A direct rollover of a pension lump sum into a traditional IRA avoids immediate taxation and the 20% mandatory withholding that applies if the check is made payable to you. Once in the IRA, the money continues to grow tax-deferred and you control the investments. You can also convert some or all of it to a Roth IRA over time as part of a tax-planning strategy.

Retirement

Lump Sum or Monthly Pension: Which Is Worth More?

Should you take the guaranteed monthly pension or the lump sum? Compare both options side by side, or dive into the actuarial details with IRS 417(e) segment rates.

Current Monthly Payment

—

New Monthly Payment

—

Est. Interest Saved

—

Break-Even

—

Pension Details

Monthly Pension Benefit

Lump Sum Offer

Assumptions

Expected Investment Return

Years in Retirement

Inflation Rate

Higher Present Value

Pension

by $168,722 in present value

Breakeven return

5.3%

to match pension for 25 years

Pension Present Value

$668,722

over 25 years

Lump Sum After 25 Yr

$153,503

at 6% return

Total Pension Income

$900,000

$3,000/mo × 25 yr

Cumulative Pension vs. Portfolio Value

Compares cumulative pension payments received against the projected lump sum portfolio balance (growing at your expected return, minus monthly withdrawals equal to the pension payment).

Your Information

Filing Status

Your Age

Gender (optional)

IRS 417(e)(3) uses a single unisex mortality table for all genders

Pension Benefit

Benefit Start

Annual Pension Benefit

$4,167/month

COLA (Cost of Living Adj.)

Annual increase to benefit (rare in private plans)

IRS Segment Rates

Pre-loaded with rates as of Dec 2024. Adjust to model different scenarios.

Segment 1 (Yr 1–5)

Segment 2 (Yr 6–20)

Segment 3 (Yr 21+)

Estimated Lump Sum Value

$665,050

At segment rates: 4.65% / 5.28% / 5.63%

Monthly benefit

$4,167/mo

If Rates Drop 100bps

$733,740

+$68,690

If Rates Rise 100bps

$606,571

-$58,480

Rate Sensitivity Analysis

Shows how your estimated lump sum changes as IRS segment rates shift up or down. Lower rates produce a larger lump sum; higher rates produce a smaller one. The orange dot marks the current-rate estimate.

Rate Sensitivity Table

Shift	Seg 1	Seg 2	Seg 3	Est. Lump Sum	Difference
+300 bps	7.65%	8.28%	8.63%	$513,139	-$151,911
+275 bps	7.40%	8.03%	8.38%	$523,387	-$141,663
+250 bps	7.15%	7.78%	8.13%	$534,006	-$131,044
+225 bps	6.90%	7.53%	7.88%	$545,013	-$120,037
+200 bps	6.65%	7.28%	7.63%	$556,427	-$108,623
+175 bps	6.40%	7.03%	7.38%	$568,268	-$96,782
+150 bps	6.15%	6.78%	7.13%	$580,557	-$84,493
+125 bps	5.90%	6.53%	6.88%	$593,317	-$71,733
+100 bps	5.65%	6.28%	6.63%	$606,571	-$58,480
+75 bps	5.40%	6.03%	6.38%	$620,343	-$44,707
+50 bps	5.15%	5.78%	6.13%	$634,662	-$30,389
+25 bps	4.90%	5.53%	5.88%	$649,554	-$15,496
0 bps (Current)	4.65%	5.28%	5.63%	$665,050	—
-25 bps	4.40%	5.03%	5.38%	$681,182	+$16,132
-50 bps	4.15%	4.78%	5.13%	$697,983	+$32,933
-75 bps	3.90%	4.53%	4.88%	$715,490	+$50,440
-100 bps	3.65%	4.28%	4.63%	$733,740	+$68,690
-125 bps	3.40%	4.03%	4.38%	$752,774	+$87,724
-150 bps	3.15%	3.78%	4.13%	$772,635	+$107,585
-175 bps	2.90%	3.53%	3.88%	$793,370	+$128,320
-200 bps	2.65%	3.28%	3.63%	$815,027	+$149,977
-225 bps	2.40%	3.03%	3.38%	$837,658	+$172,608
-250 bps	2.15%	2.78%	3.13%	$861,320	+$196,270
-275 bps	1.90%	2.53%	2.88%	$886,071	+$221,021
-300 bps	1.65%	2.28%	2.63%	$911,976	+$246,926

About This Analysis

Estimates use IRS Section 417(e)(3) methodology with the applicable unisex mortality table from IRS Notice 2023-73 (for stability periods beginning in 2024) and IRS segment rates. Your plan's actual lump sum may differ because plans choose their own stability period, lookback month, and may use different mortality assumptions. Segment rates change monthly — verify your plan's applicable rates with your plan administrator. This calculator does not account for taxes, early withdrawal penalties, PBGC guarantees, or early commencement reduction factors. Results are for informational and educational purposes only. Consult with your plan administrator and a qualified financial advisor before making any decisions about your pension benefits.

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