Pension Lump-Sum vs Annuity
Quantify the lump-sum vs guaranteed-income trade-off — breakeven age, sensitivity, survivor benefits
Pension Decision Inputs
$
$
yr
yr
%
%
%
yr
Implied Annuity Yield
6.00%
Annual payout / lump sum
Annuity PV
$383,501
At 6% discount
Breakeven Age
> 90
Age lump sum runs out
Recommendation: Take the Lump Sum
Investing the lump sum at 6% leaves $500,000 at age 90 after matching the annuity's draw.
$500,000
Lump sum at age 90
Lump-Sum Trajectory vs Annuity Cumulative
Sensitivity to Life Expectancy
| Life to Age | Lump End Value | Annuity Total | Difference | Better |
|---|---|---|---|---|
| 75 | $500,000 | $300,000 | +$200,000 | Lump Sum |
| 80 | $500,000 | $450,000 | +$50,000 | Lump Sum |
| 85 | $500,000 | $600,000 | -$100,000 | Lump Sum |
| 90 | $500,000 | $750,000 | -$250,000 | Lump Sum |
| 95 | $500,000 | $900,000 | -$400,000 | Lump Sum |
| 100 | $500,000 | $1,050,000 | -$550,000 | Lump Sum |
Trade-off: the lump sum exposes you to market risk and your own discipline; the annuity is guaranteed income but you forfeit upside, inflation protection (unless COLA-adjusted), and any residual to heirs. Pension Benefit Guaranty Corporation (PBGC) protects most private-sector annuities up to legal limits.