Pension Calculator
The defined-benefit formula in one line: final average salary, times years of service, times the plan multiplier — plus the monthly figure and what a cost-of-living adjustment does over 20 years.
Three numbers and a formula from another era
A defined-benefit pension is a multiplication: final average salary × years of service × a multiplier set by the plan. The result replaces a slice of salary for life — and its value is easy to underestimate precisely because it arrives as a modest monthly figure rather than a lump sum.
Annual pension = final average salary × multiplier% × years of service
Example: $80,000 final average salary, 30 years, 1.5% multiplier: $36,000 a year, $3,000 a month, replacing 45% of final salary. With a 2% annual cost-of-living adjustment, the 20-year total passes $875,000 — the lump-sum shadow of that 'modest' pension.
COLA is the multiplier's quiet partner
A 2% yearly cost-of-living adjustment sounds like garnish; across a 25-year retirement it raises total receipts by roughly a quarter and protects the pension's purchasing power while a fixed pension's quietly halves. Whether your plan's COLA is automatic, ad hoc or absent is one of the most valuable facts about it.
How this is calculated
The core formula is as printed. The 20-year total sums the annual pension grown by the COLA rate each year; the 25-year figure extends the same series. Survivor-option reductions, early-retirement penalties and service caps are plan-specific and deliberately excluded — your plan statement's factors govern, and the page is a scale model, not the plan.
Frequently asked questions
What counts as 'final average salary'?
Plans define it — commonly the average of the best 3 or 5 consecutive years, sometimes including or excluding overtime and bonuses. A few thousand of definition can move the pension by thousands a year; get your plan's exact definition.
Is the lump-sum offer equivalent to my pension?
Compare it as a present value: price the pension's stream (monthly amount, COLA, survivor terms) at a discount rate using the annuity calculator. Plans price buyouts with their own mortality and rate tables, which rarely favor the employee's side of the table.
How do early-retirement reductions work?
Typically a percentage per year taken before the plan's normal retirement age — 3–7% a year is common, and unlike Social Security the factors are the plan's own. Five early years can cut a pension by a quarter.
Does a pension affect Social Security?
For some public-sector workers, provisions like WEP/GPO (US) have historically reduced benefits based on non-covered pensions; the rules have been politically active. If your work was outside Social Security, this interaction needs specific advice, not a calculator's shrug.
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