How to use the Pension Calculator
- Enter your final average salary as your plan defines it — often the highest three or five years.
- Enter credited years of service.
- Enter the accrual rate per year from your plan document, commonly 1.5% to 2.5%.
- Set expected COLA and years in retirement to see lifetime value.
How the calculation works
Nearly all defined benefit plans use the same skeleton: final average salary multiplied by an accrual rate multiplied by years of service. The differences between plans lie in how final average salary is defined and whether COLA is guaranteed, capped or discretionary.
Lifetime value sums each year's payment with COLA compounding, which shows why an inflation-linked pension is far more valuable than an equivalent flat one. Over 25 years at 2% COLA, total payments run roughly 28% above a fixed benefit.
To compare a pension against a defined contribution balance, divide the annual pension by a safe withdrawal rate of about 4% — a $45,000 pension is broadly equivalent to a $1.1 million portfolio, which is why service credit is worth valuing carefully before changing employer.
Annual pension = final average salary × accrual rate × years of service; Lifetime = Σ pension × (1 + COLA)ⁱSource: U.S. Department of Labor EBSA guidance on defined benefit plan formulas; ERISA vesting and accrual rules (29 U.S.C. §1053).
Worked example
$85,000 final average salary, 30 years of service, 1.8% accrual, 2% COLA, 25 years retired.
- 85,000 × 0.018 × 30 = $45,900 a year.
- That is $3,825 a month, replacing 54% of salary.
- With 2% COLA over 25 years the payments total about $1.47 million.
An annual pension of $45,900, worth roughly $1.47 million over a 25-year retirement.
Frequently asked questions
Should I take a lump sum offer instead?+
Compare the offer against the present value of the payment stream at a realistic discount rate. Lump sums are frequently below actuarial value.
What does vesting mean?+
The point at which the accrued benefit becomes yours regardless of leaving. Five-year cliff vesting is common.
Are pensions safe if my employer fails?+
US private plans are insured by the PBGC up to statutory limits, which cover most rank-and-file benefits fully.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.