How we worked it out
Updated as you change the numbers.
- Each year’s payments ($30,000.00 rising 0% a year) are discounted at 5% back to today and added up.
Method and assumptions
The pension is valued as the present value of its yearly payments over the years you expect to receive them, paid at the start of each year. If that value is higher than the lump sum, the pension is worth more at that rate of return. The pension also protects against outliving your money, which a lump sum does not; the lump sum can be left to heirs. Taxes are not modeled.
Questions
Is $400,000 better than $2,500 a month for 25 years?
At a 5% return, the payments are worth about $444,000 today, so the pension is worth more, if you live the full 25 years.
Sources
Method and figures checked on . Every worked answer on this page is covered by an automated test. Found a mistake? Tell us.