About the Pension Calculator
This pension calculator estimates the income from a traditional defined-benefit pension plan, the kind offered by governments, teachers’ retirement systems, the military and some large employers. Most plans use the same formula: years of service × benefit multiplier × final average salary. A 1.5% multiplier and 25 years of service, for example, replace 37.5% of your final pay.
Beyond the basic benefit, the calculator applies any percentage reduction for early retirement or a joint-and-survivor option, grows payments with a cost-of-living adjustment (COLA), and values the whole stream as a lump sum at a discount rate you choose. That lump-sum equivalent helps when a plan offers a buyout or when you want to compare your pension with savings in a 401(k).
Check your plan’s summary for its exact multiplier, how it averages salary (often the highest three or five years), caps on the benefit and the COLA it pays. Payments are assumed to be made annually at the start of each year for the lump-sum value.
With the default inputs, the monthly pension (first year) is $2,656.25. Change any value above to recalculate instantly.
How to use the pension calculator
- 1Enter your final average salary as your plan defines it.
- 2Enter your years of credited service and the plan’s multiplier.
- 3Add any reduction for early retirement or a survivor option.
- 4Set the COLA, the age payments start and the age to plan to.
- 5Read your monthly pension and its lump-sum equivalent value.
Formula and method
The first-year benefit follows the standard defined-benefit formula: years of service multiplied by the plan’s benefit multiplier and your final average salary, less any reduction for retiring early or choosing a survivor benefit. The replacement ratio compares that benefit with your final average salary.
Payments then rise each year by the COLA until the age you plan to. The lump-sum equivalent discounts every year’s payment back to the pension start date at your chosen discount rate, with payments at the start of each year. A lower discount rate produces a higher lump-sum value.
- Service
- Credited years of service
- Multiplier
- Benefit accrual rate per year of service
- COLA
- Annual cost-of-living increase
- d
- Discount rate used to value the payments
- k
- Years since the pension started (0, 1, 2 …)
Worked examples
25 years at 1.5% on $85,000
The pension is 25 × 1.5% × $85,000 = $31,875 a year, or $2,656 a month — 37.5% of final pay. With a 2% COLA from 62 to 90 you would collect about $1.18 million, worth roughly $620,000 at the start date using a 5% discount rate.
Teacher: 30 years at 2%, 10% survivor reduction, no COLA
Thirty years at 2% replaces 60% of $70,000 ($42,000). A 10% survivor reduction brings that to $37,800 a year, or $3,150 a month, for 25 years — $945,000 in total.
Frequently asked questions
How is a pension calculated?+
Most defined-benefit plans multiply your years of service by a benefit multiplier (often 1%–2.5%) and your final average salary. For example, 30 years × 2% × $70,000 = $42,000 a year.
What is final average salary?+
It is usually the average of your highest-paid three or five consecutive years. Some plans exclude overtime or bonuses, and some cap the salary that counts.
Should I take a lump sum or monthly pension?+
A monthly pension guarantees income for life and protects against outliving savings. A lump sum gives control and flexibility but shifts investment and longevity risk to you. Compare the offer with the lump-sum equivalent shown here.
What is a joint-and-survivor pension?+
It continues paying a percentage (often 50%, 75% or 100%) to your spouse after you die. In exchange your own payment is reduced, which you can model with the reduction input.
Do pensions increase with inflation?+
Many public pensions pay a COLA, sometimes fixed (such as 2%) and sometimes tied to the consumer price index with a cap. Most private-sector pensions do not adjust for inflation at all.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.