Should you take your pension as a one-time lump sum or monthly annuity payments? Get a precise break-even age, present-value comparison and a recommendation based on your expected return and longevity.
The break-even age is where the lump sum, compounded annually at your expected return, equals the total of all annuity payments received to that point. The present value of the annuity is the amount you would need to invest today at the expected return to replicate the payment stream to your life expectancy. The implicit yield is the discount rate that makes the annuity's present value exactly equal the lump sum — if you can beat it by investing, the lump sum is financially superior.
Tip: beyond pure math, weigh factors like survivor benefits, spousal protection, guaranteed income vs market risk, inflation protection, and your health. A pension is often the only inflation-uncertain guaranteed income you have — many retirees value the certainty of the annuity.
Know exactly how long you must live for the annuity to pay off vs the lump sum.
Compare the annuity to the lump sum in today's dollars with proper discounting.
Find the return the annuity is effectively offering — compare it to your own investing ability.
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Plan your retirement income with confidence.