Pension Calculator
Estimate your pension income. See how years of service and salary affect your pension payout.
A $300,000 pension pot drawn at 4% a year pays $12,000 annually, or $1,000 a month before tax, and lasts 25 years if the money is not invested — staying invested is what extends that term.
Calculator
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How This Calculator Works
Pension income is typically calculated as:
Annual Pension = Final Salary × Years × Multiplier
Worked example
Take the calculator's default figures: a $300,000 pension pot, a 4% annual withdrawal rate, and a 25-year payout period.
Establish the starting pot. $300,000 is the balance on the day you begin drawing. Any tax-free lump sum you take up front must be subtracted first, because that money is no longer available to generate income.
Apply the withdrawal rate. 4% of $300,000 is $12,000 a year, or $1,000 a month before tax. The 4% rule is a planning heuristic, not a guarantee — it was derived from historical US market data over 30-year horizons and assumes a balanced portfolio, not a cash account.
Check the pot lasts the term. Withdrawing $12,000 a year from a $300,000 pot that still earns 4% a year means the balance stays roughly flat in real terms. If the pot earns nothing, $300,000 ÷ $12,000 = 25 years — exactly the term entered, with nothing left at the end.
Stress-test the bad case. A 30% market fall in year one reduces the pot to $210,000 while you still withdraw $12,000. That is now a 5.7% withdrawal rate. Recovering from that requires either lower spending or a longer horizon. This is the sequence-of-returns risk, and it is why the calculator's flat rate is a starting point rather than an answer.
The arithmetic above is reproducible with the calculator's defaults: enter 300000, 4, and 25 and the tool returns the same $12,000 annual figure.
How the withdrawal rate changes everything
The same $300,000 pot supports very different incomes, and lasts very different lengths of time, depending on the rate you draw.
| Annual withdrawal | Monthly (pre-tax) | Years to zero at 0% growth | Years at 4% growth |
|---|---|---|---|
| 3% ($9,000) | $750 | 33 years | Indefinite |
| 4% ($12,000) | $1,000 | 25 years | ~40+ years |
| 5% ($15,000) | $1,250 | 20 years | ~28 years |
| 6% ($18,000) | $1,500 | 16.7 years | ~21 years |
| 8% ($24,000) | $2,000 | 12.5 years | ~15 years |
Years-to-zero with 0% growth is balance ÷ withdrawal. The 4%-growth column compounds the remaining balance annually. Both are simplifications: real returns are volatile and sequence matters enormously.
Common mistakes with this calculation
- Treating 4% as a rule rather than a starting estimate. The 4% figure comes from a 1994 study of US historical returns over 30-year periods. It is a useful anchor, but it was not designed for a 40-year retirement, and it assumes a specific portfolio mix and rebalancing discipline.
- Forgetting that the pot must keep growing. A pension that sits in cash while you withdraw 4% a year depletes in 25 years exactly. The whole point of the withdrawal-rate approach is that the remaining balance stays invested and continues to earn.
- Ignoring tax at the point of withdrawal. Every figure this calculator produces is pre-tax. Traditional pension and 401(k) withdrawals are taxed as ordinary income, so a $12,000 gross withdrawal may deliver closer to $9,000 of spendable cash depending on your bracket.
- Planning on an average return instead of a sequence. Two retirees can experience the same 6% average return and end up with wildly different outcomes if one hits a crash in year one and the other in year twenty. Withdrawals taken during a downturn are permanently damaging because those units never recover.
When this calculator does not apply
- The calculator assumes a constant withdrawal rate every year, with no inflation adjustment. Real retirees typically want their income to rise with the cost of living, which shortens how long a pot lasts.
- It does not model state or federal tax, early-withdrawal penalties, or the required minimum distributions that begin at age 73 in the US.
- It excludes other income sources — Social Security, annuities, rental income — which change what the pension pot actually needs to deliver.
- It assumes a single pot. Most people have several accounts with different fee levels and different tax treatment, and the order you draw them in matters.
- It cannot account for long-term care costs, which are the single largest unplanned expense in retirement and can consume a pot in two to three years.
Frequently Asked Questions
What is a typical pension multiplier?
Most defined benefit plans use 1.5-2.5% per year of service. Some public sector plans use 2-3%.
Are pensions inflation-adjusted?
Some pensions include cost-of-living adjustments (COLA), others do not. Check your plan documents.
Sources & Methodology
This calculator uses standard financial formulas. See our methodology page for the full formula derivation.
- Retirement Topics — Required Minimum Distributions Internal Revenue Service
- The Safe Withdrawal Rate: Evidence from a Broad Sample Federal Reserve
- Retirement Savings and Household Finances Federal Reserve Survey of Consumer Finances
- Consumer Information on Retirement Planning Consumer Financial Protection Bureau
- National Compensation Survey — Retirement Benefits US Bureau of Labor Statistics
Last reviewed .
Key takeaways
- A 4% withdrawal from a $300,000 pot is $12,000 a year, or $1,000 a month before tax.
- At 0% growth a pot lasts exactly balance ÷ withdrawal; the whole value of staying invested is extending that term.
- The sequence of returns matters more than the average return. A crash early in retirement does far more damage than the same crash later.
- Every figure here is pre-tax and unadjusted for inflation. Budget a real-terms haircut before committing to a spending plan.
- Use the calculator to find a withdrawal rate you could survive in a bad decade, not the highest rate that works in a good one.