🪙 Annuity vs Lump Sum

Which payout is worth more at your discount rate.

What it does

Compares a lump sum offer against a monthly annuity by discounting the annuity payments to today's value, and reports the annuity's implied IRR.

When to use it

Use it when a pension, insurance payout, or settlement offers a choice between a lump sum and monthly payments.

Assumptions
  • Payments continue for a fixed number of years (your expected payment period).
  • The annuity can escalate annually at the escalation rate.
  • The discount rate reflects what the lump sum could earn if invested.
Inputs
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Pro tip

Take whichever has the higher value at your discount rate, then weigh non-math factors: an annuity removes longevity risk but reduces flexibility and dies with your estate. The IRR tells you what return the lump-sum option must beat to be the better deal.