The Pension Optimizer helps you decide between two pension payout choices: take the monthly pension for life, or take the lump sum and invest it yourself. Many traditional pensions offer this choice at retirement, and the math isn't obvious - the right answer depends on your life expectancy, what return you can earn on the lump sum, and whether the pension includes a cost-of-living adjustment.

Inputs you provide

• Monthly pension amount and COLA rate - from your Pensions & Annuities page. If your pension includes a cost-of-living adjustment, set the COLA rate; otherwise leave it at zero (fixed-dollar pensions are common, and the choice between them and a lump sum is materially different from a COLA-adjusted pension).
• Lump sum amount and the age you'd receive it - the alternative payout your plan offers. If you don't have a lump-sum option, enter zero and the optimizer skips the lump-sum comparison.
• Expected return if invested - the average annual return you'd assume if you took the lump sum and invested it yourself. Defaults to 5.5%, a typical blended return for a 50/50 stocks-and-bonds allocation. Adjust to match your actual investment plan.
• Life expectancy - drawn from your Profile plan-to-age setting. Pension-vs-lump-sum math is exquisitely sensitive to how long you live, so it's worth running with multiple longevity assumptions to see how the answer changes.

Two comparison views

The optimizer presents the same data through two lenses:

• Simple view (no investment growth) - compares the cumulative pension payments against the lump sum directly. Useful for the "how many years until the pension pays back the lump sum" question.
• Investment view (lump sum invested) - assumes you take the lump sum, invest it at your expected return, and withdraw the same income the pension would have paid each year. Surfaces the IRR ("how much do I need to earn for this to be a wash?") and the age the invested balance runs out.

Simple-view metrics

• Payout rate - annual pension divided by lump sum, as a percentage. A useful market benchmark: commercial single-premium immediate annuities at age 65 typically pay 5-7% per year. Color-coded - green at 6% and above (strong pension offer), amber 4-6% (typical), red below 4% (weak vs market, lump-sum-and-invest probably wins).
• Simple break-even age - the age at which cumulative pension payments first equal the lump sum. "Never" means the pension doesn't pay back the lump sum within your modeled plan horizon. Compare against your life expectancy: if break-even is well before, the pension is likely the better deal; if break-even is well after, the lump sum likely is.

Investment-view metrics

• Required return to match pension (IRR) - the annualized return the lump sum must earn for invested-and-drawn-down income to match the pension's full lifetime payments. Color-coded against your Expected return if invested: green when the required IRR is at or below your expected return (pension is beatable by investing), amber within 1%, red when the pension requires a return you don't expect to achieve.
• Lump sum runs out at age - the age the invested balance hits zero, assuming you withdraw the pension-equivalent income each year and earn your expected return. "Never" means the lump sum sustains the pension's income through the end of your plan.

How to read the result

No single metric decides this for you. A common rule of thumb:

• If the payout rate is >= 6% and the required IRR is well above your expected return and the simple break-even age is before your life expectancy, the pension is the better deal in pure financial terms.
• If the payout rate is < 5% and the required IRR is below your expected return, the lump sum likely wins if you can stick to the investment plan.
• In between, the decision is closer and other factors matter: confidence in the pension provider, desire for guaranteed income, willingness to manage an investment portfolio, estate-planning goals.

Things this comparison doesn't address

• Pension provider solvency. A 7% payout from a financially shaky provider isn't worth 7% from a strong one. The optimizer doesn't model default risk.
• Tax sequencing. Pensions are taxed as ordinary income year by year; a lump sum is also taxed as ordinary income but all in one year unless rolled into an IRA. The math here doesn't model the bracket-stacking effect of taking the lump sum all at once vs spreading it.
• Survivor benefits. If your pension includes a joint-and-survivor option, the lifetime-payments stream changes when one person dies. The optimizer doesn't simulate the survivor math - run that comparison via the main plan instead.
• Sequence-of-returns risk on the invested lump sum. The investment view uses a single expected-return number, not a Monte Carlo. Real investment returns are volatile, and a bad market in the early years of withdrawal can deplete the lump sum well before the deterministic projection suggests.