How to use the pension calculator
- Enter your final average salary, the figure your plan uses to calculate the benefit. Many plans average the highest 3 or 5 years.
- Enter your years of service and your plan multiplier, the percent of salary earned for each year. The value shown is only an example, so use the one in your plan documents.
- Enter the age you plan to retire and your plan's normal retirement age. If you retire earlier, enter the cut your plan applies for each year early.
- Open the advanced options to add a survivor reduction or a yearly raise, then read the monthly and annual pension.
Formula
Formula amount = final average salary x multiplier % x years of service
Early retirement reduction = years before normal age x cut per year
Annual pension = formula amount x (1 - early reduction) x (1 - survivor reduction)
Monthly pension = annual pension / 12
The multiplier, early retirement cut and survivor reduction are all values you enter. Real plans can use age and service tables, caps, minimum benefits or offsets for Social Security, so treat the result as a first estimate and confirm it with your plan administrator.
Worked example
Someone with a final average salary of $80,000, 30 years of service and a 2% multiplier has a formula amount of 80,000 x 0.02 x 30 = $48,000 a year.
Retiring at 62 when normal age is 65 is 3 years early. With a 5% cut per year that is a 15% reduction, so the annual pension is 48,000 x 0.85 = $40,800, or $3,400 a month. That replaces 51% of the final average salary.
Retiring at 60 instead with a 10% survivor reduction gives 48,000 x 0.75 x 0.90 = 32,400 a year, which is $2,700 a month.
What a defined benefit pension is
A defined benefit pension promises a set monthly amount for life, worked out from a formula that usually uses your salary and years of service. It differs from a 401(k) or similar account, where the amount depends on what you save and how investments perform. Public employees, some union members and some longtime employees of larger companies have this kind of plan.
Why early retirement lowers the amount
A pension that starts earlier is expected to be paid for more years, so plans usually reduce it. The reduction is often a percent for each year before normal retirement age, which is the style used here. Some plans allow retirement with no reduction after a certain combination of age and service, so check yours.
Survivor options and raises
A joint and survivor option pays your spouse part of the pension after you die. To make up for the longer expected payout, the monthly amount while you are alive is reduced. If your plan adds a cost of living raise, enter it in the advanced options and the table shows how the pension grows.
Assumptions and limits
- The multiplier, early retirement cut, survivor reduction and raise are values you type. The defaults are examples, not rules of any plan.
- The estimate uses a single straight line formula. Plans with tiered multipliers or age tables need those numbers worked out separately.
- The result is before taxes, health premiums and any Social Security offset.
- The tool assumes a lifetime pension with no lump sum choice and does not value the pension as a lump sum.
Frequently asked questions
Where do I find my final average salary and multiplier?
Your plan's summary plan description or annual benefit statement lists the multiplier and defines the salary average. If you cannot find them, the plan administrator or your employer's HR office can give you both.
Can a pension be more than my salary?
The plain formula can pass 100% if the multiplier and years are large, but most plans cap the benefit. The calculator shows a warning when the formula result is above your final average salary.
Does the pension change after I retire?
Some pensions are fixed for life and some add a yearly cost of living raise. Enter the raise in the advanced options if yours has one, and the table shows the monthly amount five, ten and more years out.
Is this the same as a 401(k) estimate?
No. A 401(k) balance depends on contributions and returns, and you turn it into income by withdrawing. For that kind of account use the retirement calculator or the 401(k) calculator.