Pension Calculator

Use our free pension calculator to estimate how much money you’ll receive from your employer pension plan.

Matthew Jones Matthew Jones Writer and Editor
Jeff Hoyt Jeff Hoyt Editor in Chief

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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.

Did You Know?

Did You Know? The Employee Retirement Income Security Act sets minimum standards for private pensions and helps provide pension holders with plan information.1

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
Pro Tip:

Pro Tip: Check out our senior finance guide for more financial planning resources!

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%.

FAQs About Pensions

  • Should I work longer for a better pension?

    In many cases, the longer you work for your employer, the better your pension will be. If you’ve set a goal for the retirement income you want, you could meet or even exceed it by working longer — but you shouldn’t let the promise of a higher pension get in the way of your health and well-being.

  • How many years do I need for a full pension?

    Each employer has its own unique rules for how long you need to work to get 100% of your pension. That said, you may be able to qualify for a full pension in as little as 10 years.

  • Are pensions taxed?

    Pensions are generally tax-advantaged, which means they can grow tax free. However, you will have to pay taxes on distributed funds.

Citations
  1. U.S. Department of Labor. (2023). Employee Retirement Income Security Act (ERISA).

  2. Centers for Disease Control and Prevention. (2023). Life Expectancy.

  3. Official Data Foundation. (2023). S&P 500 Returns since 1950.

Written By:
Matthew Jones
Writer and Editor
Matthew is a freelance writer who has written on a wide range of topics, from personal finance to nutrition. Over the past three years, Matthew has worked extensively on articles and guides for seniors related to Medicare, insurance, and finance…. Learn More About Matthew Jones
Reviewed By:
Jeff Hoyt
Editor in Chief
As Editor-in-Chief of the personal finance site MoneyTips.com, Jeff produced hundreds of articles on the subject of retirement, including preventing identity theft, minimizing taxes, investing successfully, preparing for retirement medical costs, protecting your credit score, and making your money last… Learn More About Jeff Hoyt
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