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.
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).
Option 1: lump sum payment
Option 2: monthly pension payment
* Please note that the calculation above assumes that the lump sum payment rollover (transfer) to a tax-deferred investment account such as an IRA, etc. without being taxed upfront. If the lump sum payment is taxable, you can use the after-tax amount in calculation.
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.
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.
Pension option 1
Pension option 2 (work longer)
Other information
* Please note that this calculator only compares the financial value of the two pension options. It does not include salary income. If you think you still need the salary income and retire earlier is better financially, you can take the pension from your current job and find another job with equivalent or higher income.