Annuity Vs. Lump Sum Calculator For Pensions

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Annuity Vs. Lump Sum Calculator

An Annuity vs. Lump Sum Calculator is a financial tool designed to compare the long-term value of receiving a large sum of money all at once (lump sum) versus receiving smaller, regular payments over a period (annuity). It helps make informed decisions when faced with options like pension payouts, lottery winnings, or large settlements.

Annuity vs. Lump Sum Calculator Instructions

This pension calculator considers the total amount of money available, the period over which annuity payments would be spread, the frequency of annuity payments (monthly, yearly), and the expected rate of return on investments. It calculates the future value of the lump sum if invested versus the total amount you would receive from annuity payments over time.

  1. Enter Your Age: Type in your current age.
  2. Input Lump Sum Amount: Add the total one-time payment you’re considering.
  3. Pick Annuity Type: Choose from the payment options.
  4. Set Annuity Start Age: Decide when you want the annuity payments to begin.
  5. Check Results: The calculator will compare the lump sum vs. annuity payments.
  6. Decide: Based on the results, pick the option that suits you best.
  7. Consult an Expert: Talk to a financial advisor (like us) for a deeper understanding.

Follow these steps to choose between a lump sum and an annuity.

Transferring The Lump Sum Into A New Annuity

To maximize the lump sum option, compare the pension annuity payments to rolling it over to a new annuity (without tax penalties) offering guaranteed lifetime withdrawals (GLWB). Use our annuity calculator to compare the rolling over the lump sum instead of the pension’s annuity option.

Benefits of GLWB

FeaturePension PaymentsGuaranteed Lifetime Withdrawal Benefits
Nature of PaymentRegular payments for life or a specified period.Regular withdrawals from the account value for life.
FlexibilityLimited flexibility once payments start.More flexibility to start, stop, or change withdrawal amounts.
Control Over PrincipalNo control, as the principal is exchanged for payments.Retain some control over the remaining account value.
Death BenefitTypically, no benefit after death (depends on the payout).Remaining account value can be passed to beneficiaries.
Impact of MarketMarket changes do not affect the payment amount.Withdrawal amounts may be affected by account performance.
LiquidityNo access to lump sum cash after annuitization.Access to remaining cash value, subject to terms and fees.
Pension Annuity Calculator

Who Should Use This Calculator?

Individuals facing decisions about pension distributions, lottery winnings, or large financial settlements benefit most from this calculator. It’s especially valuable for those nearing retirement, helping them understand how their choice affects long-term financial security.

Why Use an Annuity vs. Lump Sum Calculator?

This calculator clarifies the potential long-term financial implications of choosing between a lump sum and an annuity. It assists in understanding how each option aligns with personal financial goals, considering factors like investment returns, inflation, and personal spending habits.

Annuity vs. Lump Sum Comparison

FactorAnnuityLump Sum
Payment FrequencyRegular intervals (e.g., monthly)One-time payment
Financial PlanningEasier budgeting, steady incomeRequires self-management
Investment RiskLower, as payments are fixedHigher, depends on investment choices
Inflation ImpactFixed payments may lose value over timePotential to invest to outpace inflation
FlexibilityLimited, set scheduleHigh, funds are immediately accessible
SuitabilityIdeal for those seeking financial stabilityBetter for those comfortable with investment risk

Next Steps

Deciding whether a pension lump sum vs annuity is better for you depends on several personal factors: your health, life expectancy, financial management skills, and personal goals. While the debate between annuity and lump sum is a complex one, understanding the implications of each can empower you to make the choice that best serves your future. For expert advice and a deeper understanding, contact an annuity broker. They can guide you to make the best choice for your financial future.

Annuity Vs. Lump Sum Calculator

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What is a pension?

A pension is a retirement plan that provides employees monthly income after retirement. It’s usually based on factors like years of service and salary. Employers fund pensions, and sometimes, employees contribute as well. There are two main types: defined benefit plans, which promise a specific payment upon retirement, and defined contribution plans, where the payout depends on how much was contributed and the plan’s investment performance. Pensions are less common today, often replaced by 401(k) plans.

How does a pension work?

A pension plan provides retirement income based on your salary and length of service. Employers usually fund these plans, and you receive a monthly payment after retirement. Some plans allow employee contributions and offer options like early retirement or lump-sum payouts. The benefits depend on the plan’s rules and your employment details.

What is the difference between a pension and an annuity?

A pension is an employer-provided retirement plan offering employees a predetermined monthly income in retirement based on salary and years of service. On the other hand, an annuity is a financial product purchased from an insurance company that provides a stream of payments in exchange for an initial investment. While pensions are funded and managed by employers, annuities are personal investments that individuals choose to buy, offering various payout options and flexibility in payment amounts and schedules.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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