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Should I take my pension as a lump sum or monthly payments?
Put a pension's lump-sum offer next to its monthly payments: the age the payments catch up, the return the lump sum would need to match them, and your odds of living that long.
Yearfold is a financial-education tool. It is not a registered investment adviser and does not provide personalized investment, tax, or legal advice. Results are probabilistic projections based on historical data and stated assumptions; they are not guarantees. Methodology
Break-even age
77 years, 6 months
When the monthly payments add up to the $300,000 lump sum, ignoring any growth on it. Chance of living past it: 76%.
If the lump sum earned a return
—
Enter an expected return to see how long the lump sum could pay the same monthly amounts.
What the lump sum could pay to 95, at 0%
$833/mo
Level payments that use it up by 95, against $2,000/mo from the pension.
The return you get by taking the monthly payments
The yearly return the lump sum would have to earn to pay the same amounts — higher the longer you live.
| If you live to | Implied yearly return |
|---|---|
| 84 years, 5 months (life expectancy) | 5.1% |
| 85 | 5.3% |
| 90 | 6.6% |
| 95 | 7.3% |
Life expectancy of 19.4 more years at 65, from the SSA 2023 period life table with men and women averaged. Your own health and family history matter more than an average.
Before you decide
- Insurance on the monthly payments. Private-sector pensions are insured by the PBGC up to a maximum: for plans ending in 2026, $7,790 a month for payments starting at 65, less with a survivor option. The 2027 table raises the age-65 figure to $8,114. Government pensions (teachers, police, federal, military) aren’t PBGC-insured; they rest on the state or federal government behind them.
- Your spouse. A joint-and-survivor option keeps part of the pension paying after you die, for a lower monthly amount. Whatever is left of a lump sum goes to your heirs instead.
- Rollover or cash. A direct rollover to an IRA keeps the lump sum tax-deferred. Paid to you, the plan must withhold 20% for federal tax, and you have 60 days to roll it over (making up the withheld part from other money) before the rest is taxed as income.
- State tax. States treat pensions and IRA withdrawals differently, and some exempt part of both. See the state guides or compare two states.
How this works
A lump-sum offer and a monthly pension are the same promise priced two ways. The plan's actuary turns the stream of checks into one number using an interest rate and a mortality table set by law, so the offer is rarely a gift or a trap on its face. What changes the answer is how long you collect, what the money would earn if you held it yourself, and whether the checks rise with prices.
The break-even age is the plainest test: add up the monthly checks until they pass the lump sum. It ignores growth, so we also run the lump sum forward at the return you enter and see when paying yourself the pension's amounts would empty it. If you leave the return blank, the comparison uses no growth at all.
The implied return turns the question around. For a given lifespan, it is the yearly rate at which the payments are worth exactly the lump sum today. Live to 95 and the monthly option behaves like a high, guaranteed return; die at 75 and it was a poor one. We show it at 85, 90, 95 and at the average life expectancy for your starting age.
Life expectancy and the chance of living past break-even come from the Social Security Administration's 2023 period life table, with men and women averaged because the tool doesn't ask your sex. A married couple's odds that at least one spouse is alive are higher, which matters if you'd pick a joint-and-survivor option.
Without an inflation-linked increase, a fixed pension loses buying power every year. We show what the same check is worth in today's dollars after 10 and 20 years at 2.5% inflation, our long-run assumption for this tool.
Worked example: $2,000 a month from 65, no COLA, or $300,000 now
- Break-even: $300,000 ÷ $2,000 = 150 months, so the checks catch up at 77½. The averaged life table puts the chance of a 65-year-old living past 77½ at 76%.
- With growth: invested at 5% a year and paying out $2,000 a month, the $300,000 runs out at 84 years and 5 months.
- Implied return: life expectancy at 65 is 19.4 years, to about 84. Collecting that long makes the pension worth the same as earning 5.1% a year on the lump sum; to 90 it is 6.6%, to 95 it is 7.3%.
- Spread evenly to 95 at 5%, the lump sum pays about $1,590 a month, against $2,000 from the pension.
- Buying power: at 2.5% inflation, the $2,000 check buys about $1,562 in today's money after 10 years and $1,221 after 20.
On these numbers, the lump sum has to earn about 5% a year after fees just to keep pace with the pension to an average lifespan, and every extra year lived adds to the pension's side. It also leaves whatever remains to heirs and can be spent unevenly, which the checks can't.
The full method behind every Yearfold number is on the methodology page.
Sources
- PBGC — maximum monthly guarantee tables (2026 and 2027)
- IRS Topic 413 — rollovers from retirement plans (20% withholding)
- IRS Publication 575 — pension and annuity income
- SSA — period life table, 2023 (2026 Trustees Report)
- Yearfold — 2026 state retirement-tax table (per-state primary sources)
Built and reviewed by Mindaugas Laucius · Rules verified October 23, 2026
Questions
Why is the lump-sum offer lower than the payments added up?
Because money paid later is worth less than money paid now, and not everyone lives to collect. Private plans must use IRS-set interest rates and a mortality table to convert the pension; when those rates rise, lump-sum offers fall, and when they drop, offers rise. The same pension can be offered at noticeably different amounts a year apart.
Is my pension insured if the company fails?
Most private-sector defined-benefit plans are insured by the Pension Benefit Guaranty Corporation up to a yearly maximum that depends on your age when payments start and the year the plan ends. Government plans for teachers, police, firefighters, federal workers and the military aren't covered by PBGC; they're backed by the government that sponsors them.
What happens to taxes if I take the lump sum?
Rolled directly into an IRA, it stays tax-deferred and is taxed only as you withdraw it. Paid to you, the plan withholds 20% for federal tax, and anything you don't put back into an IRA within 60 days counts as income that year, which can also raise Medicare premiums two years later. Monthly pension payments are taxed as income as you receive them.
How does a survivor option change the comparison?
A joint-and-survivor option lowers the monthly amount so that payments continue to your spouse after you die. Compare the lump-sum offer with the payment you'd actually choose; the survivor version usually pays out over a longer combined lifetime, which lifts the implied return of staying with the pension.
Can I take part as a lump sum and keep part monthly?
Some plans allow it, often as a partial lump-sum option or a DROP account in public plans. Run each piece separately here: the monthly part you'd keep, and the lump sum against the monthly amount you'd give up for it.
See this in your full plan
The free 10,000-path calculator puts your savings, spending, Social Security, taxes and a spouse together and shows the odds your money lasts.
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