Pension Calculator
Project your defined-benefit or defined-contribution pension value at retirement age. Decision support for DB vs lump-sum at retirement.
UK Workplace Pension Calculator
Working calculator for UK defined-contribution workplace pensions.
Open UK Workplace Pension Calculator →About this tool
A pension calculator projects what your retirement income will be from an employer-sponsored or government plan, and helps you decide whether to take a Defined Benefit (DB) pension as a monthly annuity for life or as a one-time lump sum at retirement age. The math splits cleanly along the DB/DC line: DB pensions promise a fixed monthly payment that depends on years of service, final salary, and the plan's accrual rate, with the employer carrying all investment risk; Defined Contribution (DC) plans (US 401(k), Canadian RRSP, UK SIPP, Australian Super) put a defined dollar amount in each pay period and the final benefit floats with market returns.
For DB plans the decision-relevant output is the equivalent corpus value at the 4 percent safe withdrawal rate, which tells you whether the annuity is worth more than a self-managed portfolio of the same size. For DC plans the output is the projected balance at retirement under compound growth assumptions, used to test whether contributions are on track for a target replacement-income ratio.
How it works
DB Annual Pension = Years of Service x Final Salary x Accrual Rate DC Final Balance = Balance x (1+r)^n + PMT x ((1+r)^n - 1) / r Equivalent DB corpus = DB Annual Pension / 0.04 (4 percent SWR) Lump-sum competitive = Lump sum >= 16 x DB Annual Pension
- Years of Service = continuous pensionable service with the employer at the date of retirement.
- Final Salary = either the literal final salary, a 3 or 5 year average (most US/UK plans), or a Career Average Revalued Earnings (CARE) figure for newer UK public-sector schemes.
- Accrual Rate = the fraction of pensionable salary earned per year (typically 1.5 to 2.5 percent).
- r = real annual return for DC projections, usually 4 to 6 percent for a 60/40 portfolio.
- n = number of years of contributions remaining until retirement.
Worked example
Take a US state-government employee retiring in 2026 with 30 years of service, a 3-year average final salary of $80,000, and a plan accrual rate of 1.75 percent:
- DB annual pension: 30 x $80,000 x 0.0175 = $42,000 per year for life.
- Equivalent corpus at 4 percent SWR: $42,000 / 0.04 = $1,050,000. To replicate this income from a self-managed portfolio you would need $1.05M invested.
- Lump-sum offer (commutation): typical plan offers 62 percent of equivalent corpus, or about $650,000.
- Test: $650,000 / $42,000 = 15.5x. Below the 16x cutoff, so the annuity is mathematically better for an average healthy retiree.
- Add Social Security: at age 67 add ~$24,000 from SS, total $66,000/yr (82.5 percent of final salary).
Typical pension accrual rates and replacement ratios
| Plan type | Accrual rate | 30-year replacement | Inflation protection |
|---|---|---|---|
| UK private DB (legacy) | 1.50% | 45% of final salary | CPI capped 2.5% |
| US state government | 1.75% | 52.5% of final salary | Annual COLA, often capped |
| US federal FERS | 1.00% (1.1% at 62) | 30% of final salary | Diet-COLA above 62 |
| UK NHS / Teachers | 1/54 = 1.85% | 55.5% (CARE basis) | CPI + 1.5% revaluation |
| UK police / firefighters | 2.50% | 75% of final salary | CPI uplift |
| Canada CPP (max) | n/a (formula) | ~$1,433/mo at 65 in 2026 | Annual CPI |
| US Social Security (max) | n/a (PIA formula) | ~$4,018/mo at FRA in 2026 | Annual COLA |
Common mistakes
- Ignoring inflation when comparing lump sum to annuity. A $650K lump sum today is fixed; the annuity is inflation-protected (if your plan is). Over 30 years of 3 percent inflation, $650K must grow 2.4x just to keep pace.
- Forgetting the surviving-spouse benefit. Single-life annuities pay more than joint-and-survivor. If you take single-life and die early, the spouse gets zero. Most married retirees should take 50 to 100 percent joint-and-survivor unless the spouse has their own pension.
- Not stress-testing sponsor solvency. US private corporate pensions are insured by PBGC up to a cap (~$7,107/month at age 65 for 2026 retirees) but not in full. If your monthly DB pension exceeds the PBGC cap, the lump-sum option becomes more attractive.
- Confusing nominal and real returns for DC projections. A 7 percent nominal return at 3 percent inflation is 4 percent real. Use real returns when projecting future purchasing power, or you will overstate the corpus by 50 to 100 percent over 30 years.
- Treating UK CETV as a free upgrade. CETVs of 20 to 35x the annual pension look generous but you give up guaranteed inflation-linked income for life. Most independent UK advisors recommend keeping the DB pension unless the CETV exceeds 30x AND you have other guaranteed income.
- Underestimating tax in retirement. DB pensions are taxed as ordinary income at the time received. A $42,000 DB pension plus $24,000 SS in 2026 puts a single retiree at $66,000 in mostly-taxable income, federal tax ~$5,700 plus state tax.
Related tools and concepts
Frequently asked questions
Should I take a DB pension or the lump sum?
It depends on health, dependents, and the sponsor's solvency. The rough rule used by US pension actuaries: if the lump sum is at least 16 times the annual pension, the lump sum is competitive at typical 4 to 5 percent discount rates. Below 14x the annuity is mathematically better for the average healthy 65-year-old. Take the lump sum if you have a short life expectancy, no surviving-spouse benefit, or doubt the plan's funded status.
What is a pension accrual rate?
The percentage of final salary you earn per year of service. Common rates: 1.5 percent (UK private DB), 1.75 percent (US state plans), 2.0 percent (US federal FERS), 2.5 percent (UK NHS, US public safety). Multiply accrual rate by years of service to get the percentage of final salary the pension pays. 30 years at 1.75 percent equals 52.5 percent of final salary.
Are DB pensions inflation-protected?
It varies. The UK state pension has triple-lock indexation (the higher of CPI, wage growth, or 2.5 percent). US Social Security applies an annual COLA tied to CPI-W. UK private DB pensions usually index to CPI capped at 2.5 or 5 percent. Most US private corporate pensions are NOT indexed at all, meaning 30 years of 3 percent inflation erodes purchasing power by 59 percent. Always check the plan document.
What happens to my DB pension if I leave before retirement age?
You become a deferred member. The pension you accrued is preserved and revalued each year (UK: by CPI capped at 2.5 percent; US: typically frozen at the dollar amount earned). You can usually start drawing it at the plan's normal retirement age, take an early-retirement discount from age 55, or in many UK schemes transfer the value to a personal pension at a Cash Equivalent Transfer Value (CETV) usually 20 to 35 times the annual pension.
Sources
- UK Department for Work and Pensions (2026) State Pension rates 2026/27 - triple-lock uplift figures.
- US Pension Benefit Guaranty Corporation (PBGC) (2026) Maximum monthly guarantee tables.
- Bengen, William P. (1994) Determining Withdrawal Rates Using Historical Data, Journal of Financial Planning - the 4 percent rule basis for corpus equivalence.
- Society of Actuaries (2024) Lump Sum vs Annuity Decision Frameworks.
- UK Pensions Regulator (2025) Defined Benefit transfer guidance.