A buyout offer is a trade: a cheque today against an income you cannot outlive. The offer letter always shows the cheque. This shows what the income is worth — and the return the cheque would have to earn, every year, to replace it.
Free to run. Pro adds the implied return, the drawdown table and a sensitivity band.
How to use it
Enter both offers exactly as written. The monthly pension is the single-life figure unless you are comparing a survivor option; the lump sum is the gross amount before any rollover.
Be honest about the return. Use what you would really earn on the cash after fees, not what the market did last year. This single number decides the answer more than any other.
Set life expectancy for you, not the average. Family history and health matter more here than a national table. Run it twice, high and low.
Include the COLA if your plan has one. Even 2% a year compounds into a large share of the pension’s value over 25 years.
A lump sum rolled into an IRA is not taxed at transfer; taken as cash it usually is. This tool compares pre-tax values — check the tax treatment of your specific option before deciding.
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Pension, present value
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Lump sum on the table
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paid once, yours to invest or spend
Break-even age
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The number the offer letter never shows
Implied return required
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Cash runs out at
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If markets do worse
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two points below your assumed return
If markets do better
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two points above your assumed return
If you live 5 years less
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shorter life favours the cash
If you live 5 years longer
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longer life favours the pension
Taking the cash, year by year
Invest the lump sum at your assumed return and withdraw exactly what the pension would have paid.
Age
Withdrawn that year
Balance left
See the rate the cash has to earn
Pro adds the implied return — the annual return the lump sum must hit to reproduce the pension — plus the year-by-year drawdown, the age the money runs out, and how the answer moves if markets disappoint or you live longer than planned.
Present value converts a stream of monthly payments into one number in today’s money, by discounting each payment at the return you could earn instead. It is the only apples-to-apples way to set a cheque against an income.
Break-even age is the simpler question — when do the payments simply add up to the cheque? It ignores what the cheque could have earned in the meantime, so it always flatters the pension. Useful as a sanity check, not as the decision.
The implied return is the honest version of the question. If the cash must earn 7.5% a year for thirty years to match the pension, and you would actually hold a balanced portfolio, the pension is winning — and no amount of optimism about markets changes that. If it must earn 3%, the cash is genuinely competitive.
What the numbers cannot tell you
Longevity risk cuts one way. A pension cannot run out. A lump sum can, and it runs out at the worst possible moment — when you are old, out of the labour market, and least able to react.
Sequence of returns. Two portfolios with the same average return can end very differently depending on when the bad years land. Early losses while withdrawing are the ones that ruin a plan. Test yours in the Retirement Projection Suite.
Who else depends on it. A survivor option lowers the monthly figure but keeps paying a spouse. Compare like for like, and see Joint / Household Analysis for the household view.
Inflation without a COLA. A fixed pension loses roughly a third of its purchasing power over 25 years at 1.5% inflation. If your plan has no COLA, that erosion belongs in the decision.
Tax and state. Where you retire changes what a pension keeps but not what a lump sum keeps, and the gap can be thousands a year — see State Tax Comparison.
Behaviour. The lump sum only wins if it is actually invested and left alone for decades. Buyouts are often taken by people who then spend them.
Health Insurance Bridge — what cover costs before Medicare, often paid out of exactly this lump sum.
Open dataset — pension formulas and tax treatment for all 50 states.
Educational estimates only, not financial advice. Buyout offers are complex, sometimes time-limited, and irreversible — take a written copy of the offer to an adviser who is not paid on the outcome.