The Defined-Benefit Formula

Traditional pensions pay a guaranteed stream: years of service times an accrual rate times your final average salary. This pension calculator applies that formula and then values the result two ways — as an annuity with cost-of-living adjustments, and as the lump-sum present value.

COLA Changes Everything

A 2% adjustment may sound small, but compounded over a 20+ year retirement it is the difference between a check that buys less every year and one that holds its purchasing power. The chart shows the payout stream rising year over year.

Lump Sum vs. Annuity

When a plan offers a lump sum, compare it to the present value at a discount rate that reflects how you would actually invest it. If the offer is at or above the present value, taking the cash can be reasonable; if it is well below, the annuity is usually the better deal.