Pension Calculator – Annual Benefit

A defined-benefit pension promises a formula-driven income for life, and the classic formula multiplies three numbers: your final average salary, an accrual rate per year of service, and your years of credited service. Example: a 2.5% accrual with 30 years on an 80,000 final salary yields 0.025 × 30 × 80,000 = 60,000 per year, or 5,000 a month for life, typically with survivor options at a reduced rate. Taking a commuted lump sum converts part of that income using a commutation factor — at a factor of 12, giving up 6,000 of annual pension buys a 72,000 lump sum. The calculator also shows the break-even: pensioners living past the break-even age do better having kept the full income. Compare against defined-contribution plans by valuing the guaranteed stream, not just the account balance.

1. 1

   Step 1

   Enter your final average salary — often the last 3–5 years’ mean.

2. 2

   Step 2

   Enter the accrual rate (1.5–2.5% is typical per year of service).

3. 3

   Step 3

   Enter credited years of service, buying back missing years if allowed.

4. 4

   Step 4

   Read the annual and monthly benefit, and model lump-sum commutation.

• Using current instead of final salary

• Forgetting survivor reductions

• Ignoring inflation indexing