Pension Calculator – Lump Sum or Monthly Pension?

Pension Calculator: Lump Sum vs Monthly Pension

When a scheme offers a lump sum instead of a monthly pension, compare the two in today's money at the return you could earn.

Better value at your return

Monthly pension

Pension's value today

345,938.05

Difference

45,938.05

Break-even return

6.55%

Monthly income from the lump sum

1,734.41

If you can earn more than 6.55% a year on the lump sum, it beats the pension over 25 years; if you live longer, the pension gains.

Formula with your numbers

Pension value PV = Σ 2,000.00 × (1 + 0%)^⌊m/12⌋ ÷ (1 + i)^(m+1), i = (1 + 5%)^(1/12) − 1, 300 months
Lump sum as income 300,000.00 × i ÷ (1 − (1 + i)^−300) = 1,734.41

Quick answer: A pension of 2,000 a month for 25 years is worth 345,938.05 today at a 5% return, more than a 300,000 lump sum; the lump sum wins only if you can earn over 6.55% a year.

How it's calculated

Each monthly payment is discounted to today at the monthly equivalent of your return, i = (1 + r)^(1/12) − 1, and the results are added. If the pension rises each year, each year's payments are raised by that increase first.

The break-even return is the rate at which the pension's present value equals the lump sum. If you expect to invest the lump sum at a higher rate, it is worth more; below it, the pension is.

The years you receive the pension matter most: a pension pays for life, so a longer life favours it, while a lump sum can be left to heirs. The last tile shows the level monthly income the lump sum could pay over the same years.

Worked examples

2,000 a month for 25 years at 5%: PV = 345,938.05 > 300,000
Break-even return for a 300,000 lump sum: 6.55% a year

Frequently asked questions

How many years should I enter?

Your expected years in retirement, from life-expectancy tables for your age, plus a margin. A spouse's pension after your death adds years.

What return should I use?

What you could realistically earn on the lump sum with similar safety. A pension is close to guaranteed, so compare with low-risk returns.

Can GCC nationals take a lump sum?

Rules depend on the scheme (GOSI, GPSSA and others) and your service. Many pay a pension after enough service and a lump sum only in set cases; ask the scheme.

What does the break-even return mean?

The yearly return at which the lump sum and the pension are worth the same. If you can reliably beat it, the lump sum wins on the numbers.

What if I don't live as long as I entered?

A pension usually stops at death, or falls to a survivor's share, while a remaining lump sum passes to your heirs. Check what your scheme pays.

Is the choice only about the numbers?

No. A pension gives steady income that you can't outlive, while a lump sum gives control and also the risk of investing it poorly.