Pension Lump Sum vs Annuity Breakeven Calculator
Example: Lump sum offer: 300000 $ · Monthly annuity payment: 1800 $ · Assumed investment return on lump sum: 6 % · Retirement age: 62 · Life expectancy (age): 84
| Breakeven age (annuity surpasses lump sum) | 89 |
| Total lifetime annuity payments | $475,200 |
| Lump sum balance at life expectancy | $143,788 |
| Annuity wins at your life expectancy (1=yes, 0=no) | 0 |
Worked example
A $300,000 lump sum invested at 6% versus a $1,800/month pension starting at 62: the annuity pays $21,600/year. The lump sum, reinvested, earns roughly $18,000 in year one but is drawn down by the implied annuity value. The breakeven falls around age 80. If you live to 84, the annuity wins by total cumulative payments of $475,200 vs a residual lump sum of roughly $120,000.
Frequently asked questions
What return should I assume for the lump sum?
Conservative guidance uses 4–6% for a balanced portfolio. Higher assumed returns favor the lump sum; lower rates favor the annuity. An 80-year-old retiree may realistically earn 4–5% in a defensive allocation — which often makes the annuity more competitive than people expect.
Does the annuity include a survivor benefit?
Many pension annuities offer a survivor option that pays a reduced amount (e.g., 50–75%) to your spouse after your death. If you select a joint-and-survivor annuity, the monthly payment is lower but the breakeven age may extend because the annuity outlasts you. Run this tool with the joint-survivor benefit amount for the most accurate comparison.
Is the lump sum taxable?
A lump sum rolled directly into a traditional IRA or 401(k) is not immediately taxable. Taken as cash, the full amount is ordinary income in the year received. This calculator compares pre-tax amounts — factor in tax drag if you plan to invest outside a tax-deferred account.
What if I am in poor health?
Poor health favors the lump sum — a shorter life expectancy means the annuity may never reach breakeven. Conversely, if longevity runs in your family (or you are in excellent health at 62), the annuity's guaranteed income stream becomes significantly more valuable.