See the pension your service earned.
Enter your years of service, final average salary and your plan's multiplier to see your monthly and annual pension, how much of your paycheck it replaces, what it is worth over a lifetime, and whether a lump-sum offer beats it.
Your pension
The discount rate is the return you could earn if you invested the lump sum yourself. A higher rate makes the lump sum look better.
Pension or lump sum?
What your pension replaces
Final salary vs pension income
Lifetime pension income
Pension scorecard
Pension income year by year
Each year's payment grows by your COLA rate. Cumulative is everything you have collected up to that year.
| Year | Age | Annual pension | Monthly | Cumulative collected |
|---|
Pensions, explained
How Defined Benefit Pensions Work
A defined benefit pension is a retirement plan where your employer promises a specific monthly payment for life, calculated using a formula based on your salary and years of service. Unlike a 401(k) where your retirement income depends on investment performance, a pension guarantees a predetermined benefit regardless of market conditions. The employer bears all investment risk and is legally obligated to fund the plan sufficiently to meet its promises. Defined benefit pensions are most common in government, military, education, and some unionized industries, though they have become increasingly rare in the private sector over the past several decades.
Understanding the Pension Multiplier
The pension multiplier, also called the benefit factor, is the percentage used in the formula that determines your monthly pension payment. A typical formula is: years of service multiplied by the multiplier multiplied by your final average salary. Common multipliers range from 1% to 2.5%, with public sector pensions often using higher multipliers than private plans. For example, with a 2% multiplier, 25 years of service, and a $70,000 final average salary, your annual pension would be $35,000. Some plans use a career average salary instead of final average, which typically produces a lower benefit since it includes earlier, lower-earning years.
Pension vs 401(k): Key Differences
Pensions and 401(k) plans differ fundamentally in who bears the investment risk. With a pension, your employer guarantees a specific monthly income for life regardless of market performance. With a 401(k), your retirement income depends entirely on how much you contribute, how your investments perform, and how long your savings last. Pensions provide predictable, lifetime income that eliminates the risk of outliving your savings, while 401(k) plans offer portability and more individual control. The shift from pensions to 401(k) plans over the past 40 years has transferred the responsibility of retirement planning from employers to individual workers.
Lump Sum vs Monthly Pension Payments
Many pension plans offer retirees a choice between a lump sum payout and monthly payments for life, and this decision is one of the most consequential financial choices you will make. Monthly payments provide guaranteed income you cannot outlive, which eliminates longevity risk and simplifies retirement budgeting. A lump sum gives you control over investing and spending, the ability to leave remaining funds to heirs, and protection against employer bankruptcy. Financial planners often suggest comparing the monthly pension to the income you could generate from the lump sum using the 4% withdrawal rule. If the pension payment exceeds what the lump sum would safely produce, the monthly option is typically the stronger choice.
Common questions
How is a pension benefit calculated?
Most defined benefit pensions use this formula: Annual Pension = Years of Service x Final Salary x Multiplier. For example, 25 years x $85,000 x 2% = $42,500 per year ($3,542/month). The multiplier varies by employer, typically between 1.5% and 2.5%.
What is a pension multiplier?
The pension multiplier (also called the benefit accrual rate) is the percentage of salary earned per year of service. A 2% multiplier means you earn 2% of your final salary for each year worked. After 25 years, that is 50% of your final salary as an annual pension.
Should I take a lump sum or monthly pension?
The monthly pension provides guaranteed lifetime income, which is valuable if you expect to live long. The lump sum offers flexibility and can be invested, but you bear the investment risk. Generally, the monthly pension is better for most retirees unless you have health concerns or other significant assets.
Are pensions taxed?
Yes, pension income is taxed as ordinary income at federal and most state levels. However, some states exempt pension income from state taxes. You can have taxes withheld from your pension checks to avoid a large tax bill at year end.
Estimates for planning only. Your actual pension depends on your plan's exact formula, salary averaging period, early or late retirement factors, survivor elections and COLA rules. Confirm every figure with your plan administrator before making decisions.