Project your annual pension, lifetime value, and the lump-sum break-even.
Use your plan's formula — years of service × multiplier × final average salary — to project payouts, model survivor options, and compare lump sum vs annuity on present value.
Direct answers to the most common questions, in plain language. Skim if you're in a hurry; dig deeper below.
Years of service × multiplier × final average salary.
Most defined-benefit pensions use a formula: years of service multiplied by a per-year multiplier (commonly 1.5%–2.5%) multiplied by your final average salary. 30 years × 2% × $80k = $48,000 per year, for life.
Annuity for longevity protection; lump sum for control.
A monthly annuity is guaranteed income for life — the cleanest hedge against living a long time. A lump sum gives you investment control and inheritance flexibility. Compare the present value: if the lump sum invested at a realistic return beats the annuity payments, the lump sum wins on the math.
Joint and survivor if a spouse depends on the income.
Single life pays the most per month but stops when you die. Joint and survivor pays less but continues to your spouse — usually 50%, 75%, or 100% of your payment. If your spouse needs the income to live on, the lower monthly payment is buying insurance, not losing money.
Yes, treated as ordinary income at federal and most state levels.
Pension payments are taxed as ordinary income federally. Some states fully exempt pensions, others partially exempt, a few tax them in full. Plan for tax in your retirement budget — a $60k pension is closer to $48–52k after federal tax.
The mechanics in short answers — no jargon, no upsell.
Most defined-benefit pensions use: years of service × multiplier × final average salary. The multiplier is set by your plan and rarely negotiable.
Plans typically average your highest 3 or 5 years. Bumping that average — a promotion late in career, or working an extra year — has outsize impact.
Choosing a joint-and-survivor option lowers your monthly payment by 10–20%. It is buying lifetime income for your spouse — useful insurance, not lost money.
A pension with annual cost-of-living adjustments is worth dramatically more over 25+ years of retirement than one without. Confirm with your plan whether yours has it.
Designed so anyone can model their situation in under a minute, with or without a finance background.
The exact number your pension formula produces, before tax, for the retirement age you pick.
Side-by-side present value so the right choice is obvious.
Single life, 50%, 75%, and 100% joint and survivor reductions, instant.
See how each extra year of service changes the payout — usually 2–5% per year.
See if pension + Social Security covers your number, or how much more you need to save.
Total dollars paid over a realistic life expectancy — the number to compare against the lump sum.
Everything you might ask before, during, or after using this tool.
Public-sector pensions usually use 2.0%–2.5% per year of service. Private-sector defined-benefit pensions, where they still exist, are typically 1.0%–1.5%. Military and police/fire plans can reach 2.5%–3.5% with shorter service requirements.
Compute the present value of the monthly stream over a realistic life expectancy (use 85–90 to be safe), discounted at a conservative rate (4–5%). If the lump sum offered exceeds that present value, the lump sum is the better mathematical choice. If you are not confident managing the money, the annuity's longevity insurance is worth a lot.
If you are vested (usually 5 years of service), you keep the pension — it pays out when you reach retirement age. If not vested, you forfeit the employer-funded portion but get back any contributions you made.
If you paid into Social Security while earning the pension, no effect. If you earned the pension under a non-SS-covered job (some teachers, federal pre-1984, foreign work), the Windfall Elimination Provision and Government Pension Offset can reduce your Social Security benefit.
Most pensions have a normal retirement age (often 60–65) and an early retirement age (often 55) with reduced benefits. Each year of early retirement typically reduces the monthly payment by 3–7%.
Different products, both have a role. A pension gives guaranteed lifetime income — incredibly valuable for retirement security. A 401(k) gives investment control and inheritance flexibility. The right answer for most people is "both, if available."
Most plans take the average of your highest 3 or 5 consecutive years. Some use the last 3 years regardless of pay. Read your plan summary to know which method applies — it can change your pension by 5–10%.
Only if your plan has a cost-of-living adjustment (COLA). Most public-sector plans do, often capped at 2–3%. Most private-sector plans do not, which means your purchasing power can be cut in half over a 25-year retirement.
Other Lazysmirk tools that pair well with this one.
Calculate how much you need to retire, when you can retire, and whether your current savings rate will get you there. Inflation-adjusted, with Social Security.
Estimate your monthly Social Security benefit at every claiming age. Compare 62, 67, and 70 side-by-side with lifetime payout, break-even, and COLA-adjusted projections.
Stack Social Security, pension, and portfolio withdrawals to see your real monthly retirement income.
See how long your retirement portfolio lasts at any withdrawal rate — with inflation adjustments.
See the exact age you can retire — your savings, contributions, and expected return projected against an inflation-adjusted spending target.
Years × multiplier × final average salary. It looks simple, but every input has leverage. One extra year of service is typically 2–2.5% more payout for life. A 5% bump in final average salary is 5% more payout for life. The combination at retirement is when small choices compound into thousands per year.
On pure math, compute the present value of the annuity stream over your expected lifetime. If the offered lump sum is bigger, take it. If smaller, the annuity wins.
But the meta matters: an annuity is longevity insurance. If you live to 95, the annuity keeps paying. If you live to 70, the lump sum gives your heirs something. Match the choice to your situation, not just the math.
A 50% joint and survivor option reduces your monthly by 10–15%. A 100% option reduces it by 15–25%. That reduction is the premium you pay for lifetime income to your spouse if you die first.
If your spouse has their own pension or significant savings, single life can be the right choice. If they're depending on this income, the reduction is buying critical protection.
A 3% annual COLA over 25 years more than doubles your pension. A 2% COLA increases it by 64%. A zero-COLA pension loses half its purchasing power over a long retirement.
If your plan has a COLA, it is one of the most valuable parts. Confirm whether it is automatic, ad-hoc, or capped, and budget accordingly.
Two short notes worth reading before you trust any number on this page.
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