Compare pension lump sum versus annuity payout options with present value analysis and breakeven life expectancy.
Enter a lump-sum pension offer alongside the monthly annuity alternative, a discount rate, and your current age, and this tool converts the annuity's future payments into today's dollars to see which option is worth more right now. It then works out a breakeven age: how long you'd need to collect the annuity before its present value overtakes the lump sum. Most users are surprised how far a modest discount rate pushes that breakeven age out, often close to or past typical life expectancy, which is the whole point of running the comparison before signing paperwork.
A concrete input and expected output from the current implementation.
Input
Lump sum offer: $250,000. Monthly annuity: $1,500 for life. Discount rate: 5% per year. Current age: 65.
Expected output
Annual annuity payment: $18,000. Present value of the annuity equals the $250,000 lump sum at about 24.3 years of payments, giving a breakeven age of roughly 89. Before that age the lump sum has more present value; after it, the annuity does.
Using PV = C x [1-(1+r)^-n]/r with C=$18,000 and r=5%, PV reaches $250,000 when n is about 24.3 years, so 65 + 24.3 rounds to a breakeven age near 89.
Monthly annuity payments are annualized and discounted back to today using the ordinary annuity present-value formula, PV = C x [1 - (1+r)^-n] / r, where C is the annual payment, r is your entered discount rate, and n is a payout horizon in years. The resulting present value is compared directly against the lump-sum offer, both expressed in today's dollars.
Starting from your current age, the calculator extends the payout horizon year by year until the annuity's present value first equals the lump sum, then reports that point as an age. A lower discount rate shortens the breakeven age; a higher one lengthens it, since payments further in the future are worth progressively less at higher rates.
No. It reports the age at which the annuity's present value catches up to the lump sum under your discount rate, not a survival-probability-weighted expected value. Compare that age against family health history or a life-expectancy table yourself before deciding, since the tool has no mortality data built in.
The tool doesn't supply one; you choose it. A common approach is your expected long-term investment return if you'd invest the lump sum, or a more conservative rate tied to current bond yields. Running the calculation at two or three rates shows how much the breakeven age depends on that single assumption.
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