Pension Calculator
Pension Options Calculator
Pension policies can vary with different organizations. Because important pension-related decisions made before retirement cannot be reversed, employees may need to consider them carefully. The following calculations can help evaluate three of the most common situations.
Modify the values and click the calculate button to use
Lump sum payout or monthly pension income?
There are mainly two options regarding how to receive income from a pension plan: either take it out as a lump sum payment or have it distributed in a stream of periodic payments until the retiree passes away (or in some cases, until both the retiree and their spouse passes away).
Single-life or joint-and-survivor pension payout?
A single-life pension means the employer will pay their employee’s pension until their death. This payment option offers a higher payment per month but will not continue paying benefits to a spouse who outlives the retiree. In contrast, a joint-and-survivor pension payout pays a lower amount per month, but when the retiree dies, the surviving spouse will continue receiving benefits for the remainder of their life.
Should you work longer for a better pension?
It is possible for some people to postpone retirement for several years for more pension income later. Use this calculation to see which option is preferred.
Pensions
Traditionally, employee pensions are funds that employers contribute to as a benefit for their employees. Upon retirement, money can be drawn from a pension pot or sold to an insurance company to be distributed as periodic payments until death (a life annuity). Please visit our Annuity Calculator or Annuity Payout Calculator for more information or to do calculations involving annuities. In the U.S., the main advantage of a pension as a vehicle of saving for retirement lies in the fact that pensions provide preferential tax benefits for money placed into them as well as any subsequent earnings on investment. In many modern instances, the term “pension” is used interchangeably with the term “retirement plan” rather than as a form of it.
Defined-Benefit Plan
When people throw around the term “pension plan,” the Defined-Benefit (DB) plan is typically what they are referring to. In this type of pension plan, employers guarantee their employees a defined amount, or benefit, upon retirement, regardless of the performance of the investments involved, and with certain tax advantages. This can vary from plan to plan, but while employers are the main contributors of the DB plans, employees may also be able to contribute. The DB plans in the U.S. do not have contribution limits.
Defined-Contribution Plan
In this type of pension plan, employers may make specific contributions to each of their employees’ tax-advantaged pension plans. There are a number of ways for employers to make contributions, but the most common method is providing a matching contribution up to a certain percentage of income for each employee, while a less common method is based on the years of service of each employee. Distribution amounts in retirement are based on historic employee and employer contributions, along with investment gains and losses over time.