After-tax present value gapPension +$17,518
Monthly pension ahead after tax (breaks even at age 83.7; 6.04% IRA return needed to tie). Pension paysAt these inputs, the monthly pension is worth about $17,518 more after tax ($21,897 pre-tax) over 24 years (age 62 to 86). Drawing the same check from the $420,000 IRA at 5.50% depletes the rollover at age 83.7, and the IRA would need 6.04% a year to match the pension.
Monthly pension annuity Higher present value
Pays $2,800 a month in year 1 ($33,600 a year before tax, $26,880 after a 20% tax rate).
Over 24 years (age 62 to 86), total pension checks add up to $806,400 before tax ($645,120 after tax), with an after-tax present value of $353,518 discounted at 5.50%.
Single-life schedule with no survivor continuation after age 86.
Lump-sum IRA rollover Depletes early
Rolls $420,000 tax-free into a traditional IRA ($336,000 after-tax value at a 20% withdrawal tax rate).
Withdrawing the exact pension check each year depletes the IRA at age 83.7, ending $79,149 short pre-tax ($63,319 after tax) by age 86.
Spread evenly over 24 years at 5.50%, the lump sum alone could fund a level $2,661 monthly check before tax.
Your COLA is set to 0%, which is standard for most private corporate pensions. With no COLA, a 2.5% inflation rate cuts the real buying power of a fixed check by about 45% over 24 years.
Monthly pension PV (after tax)$353,518
$441,897 pre-tax over 24 years Lump-sum rollover (after tax)$336,000
$420,000 gross IRA rollover Implied IRA return to tie6.04%
Vs your 5.50% target (+0.54 pts) Break-even ageAge 83.7
21.7 years into retirement Side-by-side comparison
Both a traditional monthly pension and a traditional IRA rollover withdrawal are taxed as ordinary income when paid out.
Side-by-side comparison of the monthly pension check and the lump-sum IRA rollover| Metric | Monthly pension | Lump-sum IRA rollover |
|---|
Cumulative pension received vs remaining IRA balance, by age
Tracks cumulative after-tax pension checks received against the remaining after-tax IRA balance when withdrawing the exact same check each year.
Cumulative after-tax pensionRemaining after-tax IRA
Year-by-year pension payout and IRA rollover balance if withdrawing the same check each year| Year and age | Phase | Monthly gross check | Annual after-tax check | Cumulative after-tax pension | Remaining pre-tax IRA balance |
|---|
What changes the answer most
These two assumptions move the after-tax present value gap the most when varied one at a time.
- If the expected IRA return were 1.5 points higher, it would shift the after-tax advantage toward the lump sum by about $45,222; 1.5 points lower, it would shift the after-tax advantage toward the monthly pension by about $56,321.
- If the monthly pension check were 15 percent higher, it would shift the after-tax advantage toward the monthly pension by about $53,028; 15 percent lower, it would shift the after-tax advantage toward the lump sum by about $53,028.
How this estimates
Present value of the pension stream. For each retirement year from your starting age through your planning age (plus any surviving spouse years), the model calculates the annual pension payout with your yearly COLA raise and discounts it back to retirement age at your expected IRA return rate. Multiplying by one minus your effective tax rate gives the after-tax present value, which is compared directly against the after-tax value of the lump-sum IRA rollover.
IRA drawdown and break-even age. Starting with the gross lump-sum rollover in a traditional IRA, the model credits your expected annual return each year and withdraws the exact gross pension check. The break-even age is the age at which the IRA balance reaches $0. If you live past the break-even age, the lifetime pension pays out more than the lump sum plus its investment returns. The implied IRA return is the exact annual return rate (found by bisection) at which the lump sum reaches $0 right at the end of your planning horizon.
What this leaves out
Sequence-of-returns risk (a market drop early in retirement shrinks an IRA faster than a steady average return), annuity purchase fees inside an IRA, required minimum distributions (RMDs starting at age 73 or 75 under SECURE 2.0), estate goals beyond the planning horizon, and employer or pension plan credit risk above PBGC guarantee limits. For single-employer corporate plans that terminate with insufficient assets, the Pension Benefit Guaranty Corporation (PBGC) insures benefits up to statutory limits ($7,789.77 a month at age 65 in 2026); public-sector and church plans are not PBGC-insured.
Tax and actuarial rules
A direct trustee-to-trustee rollover from a qualified pension plan into a traditional IRA owes no current tax. If the lump sum is paid directly to you in cash instead of rolled over, the plan must withhold 20% for federal income taxes, and distributions before age 59.5 (or before age 55 when separating from service) may owe an extra 10% early-withdrawal tax under IRS Publication 575. Private plans compute minimum lump-sum values under IRS Minimum Present Value Segment Rates (IRC Section 417(e)(3)). Life expectancy benchmarks come from the Social Security Administration Period Life Table, and consumer election checklists are published by the Consumer Financial Protection Bureau (CFPB).
An estimate from the numbers you typed. Not tax, legal, actuarial or investment advice. Read your plan's benefit election packet and consult a qualified tax or financial professional before making an irrevocable pension election.
Benchmark sources and dates
Starting assumptions are example benchmarks, not binding quotes. Change any input to match your own bills or offers.
| Assumption / Input | Starting value | Source | Checked |
|---|
| Monthly pension check | $2,800 a month ($33,600 a year). Typical, edit this. | Pension Benefit Guaranty Corporation (PBGC) Maximum Monthly Guarantee Tables | 2026-10-18 |
| Lump-sum offer | $420,000 one-time rollover. Typical, edit this. | IRS Minimum Present Value Segment Rates | 2026-10-18 |
| Retirement age and planning age | Retire at 62, plan to age 86 (24 years). Typical, edit this. | Social Security Administration Period Life Table | 2026-10-18 |
| Survivor benefit share and extra years | 0% default (single-life annuity), 5 extra survivor years when active. Typical, edit this. | Consumer Financial Protection Bureau (CFPB) guide to pension lump-sum payouts | 2026-10-18 |
| Yearly COLA raise | 0% a year default. Typical, edit this. | Consumer Financial Protection Bureau (CFPB) guide to pension lump-sum payouts | 2026-10-18 |
| Expected IRA return | 5.5% a year. Typical, edit this. | IRS Minimum Present Value Segment Rates | 2026-10-18 |
| Effective tax rate on payouts | 20%. Typical, edit this. | IRS Publication 575, Pension and Annuity Income | 2026-10-18 |