Pension Calculator

Types of Pension Plans

When using a pension calculator to estimate your payouts, you’ll need to understand what type of pension plan you have. Generally, pension plans are differentiated by three things:

1. When employers contribute and distribute funds
2. Who receives pension distributions
3. How funds are distributed

Defined Benefit vs. Defined Contribution

With a Defined Benefit (DB) plan, your employer makes contributions to the plan and pays out a guaranteed benefit when you retire, regardless of how the investments performed. These plans are often tax-advantaged and may allow for employee contributions. You might want a DB plan if you prefer reduced risk, as you can count on a guaranteed retirement benefit directly linked to your age, earnings, and years with the employer.

Defined Contribution (DC) works the same as DB insofar as your employer makes contributions to your plan (typically based on your earnings), and then pays out benefits to you during retirement. However, with a DC pension, the distributed funds are linked directly to the number of contributions and the performance of the investments. In other words, you won’t get a guaranteed retirement benefit; you’ll get a benefit that may be higher or lower, depending on how long you worked and how well the investments performed.

Single Life vs. Joint Survivor

With a Single Life plan, your employer pays out benefits to you (the employee) until your death. Alternatively, a Joint Survivor plan pays out a reduced amount to you and your spouse, and then continues to pay benefits to the surviving spouse when one of you passes away. While a Joint Survivor plan pays less than a Single Life plan, it provides greater long-term security to married couples.

Lump Sum vs. Life Annuity

Most pensions function as life annuities by default. With an annuity, your employer makes regular contributions that grow over time. Once you retire, your pension plan pays your benefit on a monthly basis. In some cases, you may be able to choose the lump sum option, which allows you to take out a larger amount all at once. Not all pension plans offer this option, but many do. Additionally, you may choose to begin your retirement with a monthly annuity benefit and later take out a smaller lump sum.

How to Use Our Pension Calculator

Our pension calculator is easy to use, as you only have to input a few bits of information.

What You Know

• Single Life or Joint Spouse monthly benefit
• Your age
• Your spouse’s age (if applicable)

What You Assume

• Annual cost of living (COL) increase
• Anticipated retirement age
• Your anticipated life expectancy
• Your spouse’s anticipated life expectancy
• Estimated investment return

Since calculating your pension takes a certain amount of guesswork, here are a few considerations to make your assumptions as accurate as possible:

• Annual COL increase: The Social Security Administration makes it easier to understand nationwide COL changes using its Cost of Living Adjustment (COLA) tool. Between October 2022 and October 2023, the average cost of living in the United States increased by 3.2%.
• Anticipated life expectancy: This is a tough metric to guess for yourself or your spouse, as everyone has unique health concerns and genetic predispositions. Currently, the average life expectancy among Americans is 73.5 for males and 79.3 for females.2
• Estimated investment return: You typically have a certain degree of control over how your pension funds are invested, though they’re usually linked to larger market indexes. Between 1950 and 2023, the S&P 500 saw an average return of 11.28% per year.3 After adjusting for inflation and administrative fees, you might expect returns between 5% and 8%.