Financial · Live
Pension payout,
down to the dollar.
A precise defined-benefit pension calculator. Enter your years of service, final salary, and accrual rate to see your exact monthly pension, replacement ratio, and lifetime total, with COLA compounding and a full year-by-year schedule built in.
Inputs
Your pension
Assumptions
- Years until retirement
- 25 yr
- Years in retirement
- 20 yr
- Replacement ratio
- 50%
Monthly pension at retirement
age 65 · 25y away
$37,500.00 per year · 50% of final salary
Annual payout
Year by year in retirement
Schedule
Year-by-year payout
| Age | Cumulative |
|---|---|
| 65 | $37,500.00 |
| 66 | $75,750.00 |
| 67 | $114,765.00 |
| 68 | $154,560.30 |
| 69 | $195,151.51 |
| 70 | $236,554.54 |
| 71 | $278,785.63 |
| 72 | $321,861.34 |
| 73 | $365,798.56 |
| 74 | $410,614.52 |
| 75 | $456,326.80 |
| 76 | $502,953.33 |
| 77 | $550,512.39 |
| 78 | $599,022.63 |
| 79 | $648,503.07 |
| 80 | $698,973.12 |
| 81 | $750,452.57 |
| 82 | $802,961.61 |
| 83 | $856,520.83 |
| 84 | $911,151.23 |
Field guide
How a defined-benefit pension actually works.
A defined-benefit (DB) pension is a retirement plan in which your employer promises a specific monthly payment for life, calculated by a formula — not by the performance of an investment account. Unlike a 401(k) or IRA, the size of the payout is locked in at retirement. The risk of market volatility falls entirely on the employer or pension fund, not on you.
DB pensions remain common in the public sector — federal, state, and local government employees, teachers, police, firefighters, and military personnel and survive in a diminishing number of large private-sector firms. If you work in one of these jobs, understanding your pension formula is worth more than any generic retirement calculator.
The pension formula
Despite differences between plans, virtually every defined-benefit pension uses the same three-variable formula:
- Years of service: the number of creditable years you worked under the plan. Some plans credit part-time years at a fraction; some include purchased service credit for military time or prior employment.
- Accrual rate: the percentage of salary earned per year of service. A 2% accrual rate means 30 years of service generates a pension equal to 60% of final salary (30 × 2%).
- Final salary: most plans use a "final average salary" (FAS): the average of your highest 3 or 5 consecutive salary years, not your last paycheck. The calculator uses a single figure; enter your FAS here.
What is an accrual rate?
The accrual rate, sometimes called the benefit multiplier , the engine of your pension. Every year of service adds this percentage to your eventual payout. Common rates by plan type:
| Plan type | Typical accrual rate | Notes |
|---|---|---|
| Federal FERS | 1.0% – 1.1% | 1.1% if 30+ years and age 62+ |
| State teacher pensions | 1.5% – 2.5% | Varies widely by state |
| Police / firefighter | 2.0% – 3.0% | Often with earlier retirement age |
| Military (legacy High-3) | 2.5% | Capped at 75% after 30 years |
| Military (Blended Retirement) | 2.0% | Plus matching TSP contributions |
| Corporate DB plans | 1.0% – 2.0% | Increasingly rare; many frozen |
A higher accrual rate is not always better: some high-accrual plans have stricter vesting rules, longer required service, or smaller final salary definitions. Read the full plan document, not just the multiplier.
Worked example
A state teacher retires after 30 years of service with a final average salary of $80,000 and a 2% accrual rate:
- Annual pension:
30 × 2% × $80,000 = $48,000/yr - Monthly pension:
$48,000 ÷ 12 = $4,000/mo - Replacement ratio:
$48,000 ÷ $80,000 = 60%
Financial planners generally target a replacement ratio of 70–80% of pre-retirement income (spending typically falls in retirement). At 60%, this pension nearly reaches that target on its own — before Social Security, savings withdrawals, or a spouse's income.
COLA: the hidden compounding engine
Many public-sector pensions include a cost-of-living adjustment (COLA) that increases the payout each year by a fixed percentage (or by some fraction of CPI). Even a modest COLA compoundsinto a substantial difference over a long retirement:
At 2% COLA, a $4,000/mo pension becomes $4,859/mo after 10 years and $5,909/mo after 20 years. Over a 25-year retirement, the COLA adds roughly $240,000 in cumulative extra income on that base. Private-sector pensions rarely include a COLA, which is why they erode purchasing power over time, a critical factor if you're comparing a pension offer to a lump-sum buyout.
Replacement ratio: the number that actually matters
Your replacement ratio — annual pension ÷ final salary — tells you how much of your working income the pension replaces. Most retirement planners aim for 70–80%, reasoning that post-retirement spending drops: no commuting costs, no retirement contributions, no payroll taxes, potentially lower housing costs, and (eventually) no dependent children.
A 60% pension replacement ratio is strong; combined with even a partial Social Security benefit, most people can maintain their standard of living without touching retirement savings. A 30–40% ratio means the pension alone falls short: you'll need supplemental savings, a part-time income, or a significantly lower post-retirement spending level.
Vesting and early departure
A DB pension requires vesting before any benefit is owed. Two common structures:
- Cliff vesting: you receive nothing if you leave before the cliff (typically 5 or 10 years); after the cliff, you're 100% vested.
- Graded vesting: you earn an increasing percentage of the eventual benefit over several years (e.g., 20% per year over 5 years).
Leaving before vesting forfeits your entire pension entitlement. Even after vesting, leaving early usually means a reduced benefit: the formula is applied to your actual years of service at departure and the salary at the time, with no credit for salary growth you would have received. Early-departure pensions are sometimes called deferred vested benefits and begin paying at the plan's normal retirement age, not when you left.
Pension vs. lump-sum buyout
Some employers offer a lump-sum buyout as an alternative to the monthly pension. Deciding between them requires comparing the lump sum to the present value of the pension stream:
If the lump sum is $600,000 and the monthly pension is $4,000, you'd need to receive the pension for 150 months (12.5 years) to match the lump sum — before COLA and survivor benefits. If you expect to live well beyond that break-even point, the lifetime stream is usually worth more.
The case for the lump sum is strongest when: (a) you have a shorter life expectancy, (b) the plan has no COLA, (c) you're a skilled investor who can beat the implicit discount rate, or (d) the plan sponsor is financially distressed and you doubt the annuity's long-term security.
Pension vs. 401(k)
Defined-benefit pensions and defined-contribution plans (401k, 403b) differ in who bears investment risk:
- DB pension: employer bears risk; you receive a guaranteed monthly check regardless of market conditions; less flexibility; dependent on employer solvency and plan funding.
- 401(k): you bear risk; balance fluctuates with markets; full portability; you control allocation; income in retirement depends on the balance you accumulate and how you draw it down.
Most financial advisors treat a DB pension as a "bond-like" anchor in the retirement portfolio: stable, predictable income that reduces the need to hold bonds in your 401(k). If your pension provides a strong replacement ratio, you can afford to be more aggressive with your supplemental savings.
How to maximise your pension
- Work more years. Every additional year of service compounds doubly: more years in the formula and a higher final salary.
- Maximise your final-years salary. The FAS calculation (usually 3–5 years) means a promotion or pay increase in your final years has an outsized impact.
- Buy service credit if eligible. Many plans let you purchase credit for military service, prior public employment, or parental leave. The actuarial cost often beats the return on other investments.
- Understand early-retirement reductions. Retiring before the plan's normal retirement age often triggers a percentage reduction per early year (the "early retirement factor").
- Choose the right survivor benefit. Most plans offer a joint-and-survivor option that reduces your payment but continues paying a portion to a surviving spouse. The cost of this insurance is usually favourable compared to a private annuity.
What this calculator doesn't model
For clarity this calculator models the core formula only. Not included:
- Early-retirement reductions: most plans reduce the benefit if you retire before the plan's Normal Retirement Date (NRD), typically by 3–6% per year before that date.
- Survivor / joint-life options: electing a joint-and-survivor annuity reduces the primary benefit but provides income continuation for a surviving spouse.
- Social Security integration: some plans offset the pension by a portion of your Social Security benefit ("Social Security Integration" or "levelling"). Check your plan document.
- Plan funding status: underfunded plans can reduce benefits, especially in private-sector plans covered by the PBGC (up to $7,488/mo guarantee in 2024).
- Taxes: pension income is taxable as ordinary income in most cases. Some states exempt public-sector pensions.
Disclaimer
This calculator is a planning tool, not a statement of benefit entitlement. Actual pension amounts depend on your specific plan document, your employer's actuarial assumptions, vesting rules, and legislative changes. Contact your plan administrator or HR department for an official benefit projection.