How to use this calculator
Enter your final annual salary, your years of service so far, your plan's multiplier, your current age, your planned retirement age and your expected monthly Social Security benefit. The calculator adds the years you still plan to work and estimates your yearly and monthly pension, your total monthly retirement income and how much of your salary it replaces.
Your plan documents list the exact multiplier and the salary definition your plan uses. Use them if you have them.
How a defined benefit pension is calculated
Most traditional pensions use a formula: final average salary × multiplier × years of service. With a $75,000 final salary, a 1.5% multiplier and 30 years of service, the yearly pension is $75,000 × 1.5% × 30 = $33,750, or about $2,812 a month.
Plans define 'final salary' in different ways. Many use the average of your highest three or five years. Some reduce the benefit if you retire before the plan's normal retirement age.
Choices to make at retirement
The pension decision is often permanent, so look at each option:
- Single life annuity: the highest monthly payment, but it stops when you die.
- Joint and survivor annuity: a lower payment that continues to your spouse. Federal law makes this the default for married workers in private plans unless the spouse agrees in writing to another option.
- Lump sum: some plans let you take the value as a single payment, which you can roll over to an IRA.
Is your pension protected?
The Pension Benefit Guaranty Corporation (PBGC) insures most private-sector defined benefit plans up to legal limits. Government pensions are not insured by the PBGC; they depend on the state or local plan.
Frequently asked questions
Should I take my pension as a lump sum or as monthly payments?
Compare the present value of the monthly payments against the lump sum offered. If the lump sum is clearly larger, the plan is paying you to take the risk off its books; if it is smaller, the monthly payment wins on arithmetic. The decision rarely turns on arithmetic alone: the monthly payment is income you cannot outlive, and the lump sum is control and something to leave behind.
What is the present value of a pension?
What the future stream of payments is worth in today's dollars, after discounting each payment for the time you wait for it and the chance you are alive to receive it. It is the only way to compare a pension buyout offer against a monthly payment on equal terms, which is why an offer should always be run through it before it is accepted.
What is a typical pension multiplier?
Many plans use a multiplier between 1% and 2.5% per year of service. Public safety and some government plans can be higher.
Is pension income taxable?
Pension income is usually taxed as ordinary income at the federal level. State rules differ: some states do not tax pensions at all.
Does a pension reduce my Social Security?
The Social Security Fairness Act, signed in January 2025, repealed the Windfall Elimination Provision and the Government Pension Offset, which used to reduce benefits for many people with pensions from jobs not covered by Social Security.
Keep reading
- How to calculate the present value of a pension
- How to calculate tax on pension income
- What happens to your pension if you change jobs
- Retirement taxes by state
- Learning Center: employer benefits
- All free calculators
This calculator gives estimates for education only. It is not personalized financial, tax or legal advice. Check your numbers with a qualified professional before you make a decision.