A lump sum today and a monthly payment stream for years to come aren’t directly comparable on the numbers alone — they only become comparable once the future stream is discounted back to today’s dollars.
How it works
The monthly annuity payments are converted into a single present-value figure using a chosen discount rate — the same present-value math this site’s NPV and annuity payout calculators use, applied here to a stream of equal future payments. That figure is then compared directly against the lump sum offer.
Why the discount rate decides the answer, not just the numbers
The same lump sum and annuity offer can flip from “take the annuity” to “take the lump sum” purely by changing the assumed discount rate — a higher rate makes the future annuity payments worth less today, favoring the lump sum; a lower rate favors the annuity. Neither number in the offer itself has to change for the verdict to reverse.
How to use this calculator
- Enter the lump sum offer and the monthly annuity payment being compared.
- Enter how many years the annuity would pay, and a realistic discount rate.
Frequently asked questions
What discount rate should I use?
A realistic estimate of what the lump sum could actually earn if invested elsewhere at a similar risk level — the same judgment call this site’s NPV calculator asks for.
Does this account for the annuity’s protection against outliving the money?
No — a lifetime annuity’s insurance value, guaranteeing payments regardless of how long someone lives, isn’t captured in a pure present-value comparison over a fixed number of years.
Does this account for taxes on either option?
No — both the lump sum and the annuity payments are typically taxable income when received; this calculator compares the pre-tax present values only.
