1. What is a Pension vs Lump Sum Calculator?

Definition: This calculator compares the value of a pension annuity payment versus taking a lump sum distribution using present value factors.

Purpose: Helps retirees and financial planners evaluate which pension option provides better value based on current economic factors.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Lump Sum — Present value of future pension payments ($)
• Annuity — Annual pension payment amount ($/year)
• PV Factor — Present value factor (unitless)

Explanation: The annuity amount is multiplied by a present value factor that accounts for interest rates and life expectancy to determine the equivalent lump sum value.

3. Importance of Pension vs Lump Sum Calculation

Details: Proper comparison helps retirees make informed decisions about whether to take monthly payments or a one-time lump sum distribution.

4. Using the Calculator

Tips: Enter the annual pension amount and present value factor (default 12.0). All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical PV factor?
A: PV factors typically range from 10-15, with 12 being common for average interest rates and life expectancies.

Q2: How is the PV factor determined?
A: It's based on IRS mortality tables and current interest rates - your pension administrator provides this number.

Q3: When does a lump sum make more sense?
A: When interest rates are high (higher PV factors) or if you have other investment opportunities.

Q4: When does the annuity make more sense?
A: When interest rates are low or if you prefer guaranteed lifetime income.

Q5: Should I consider taxes in this decision?
A: Yes - lump sums may be rolled into an IRA while annuities are taxed as ordinary income. Consult a tax professional.