Updated July 30, 2026. Quick answer: You do not need a forecast to start. Divide the annual benefit by the lump sum and you have the payout rate — the return the plan is implicitly paying you, for life, with no market risk. That single ratio, compared against what you could safely produce yourself, does more work than any projection, and both numbers are already on the paperwork the plan sent you.
Step one: the payout rate
Annual benefit ÷ lump sum = the plan’s payout rate. Use the monthly figure for the annuity form you would actually elect, multiplied by twelve. This ratio is not an estimate and involves no assumption. It is the rate the plan is offering you for the rest of your life, and it already has the plan’s own mortality and interest assumptions baked in, because §417(e)(3) built the lump sum that way.
Now the comparison, and it is a comparison rather than a calculation. A high payout rate means the plan is paying you well to give up the capital. A low one means you are being asked to hand over a large sum for a modest income. What counts as high or low is answered by what the same lifetime income costs elsewhere — which is a quote you can obtain, not a parameter you have to guess.
Step two: what the ratio leaves out, in both directions
| Factor | Which way it pushes | Why the ratio misses it |
|---|---|---|
| How long you live | Toward the annuity, if long | The ratio is an annual rate; longevity is the number of years it runs |
| Whether the benefit is adjusted for inflation | Usually toward the lump sum | A level monthly payment loses purchasing power and the ratio does not show it |
| Survivor need | Toward the annuity | The single-life ratio flatters an option your household may not be able to take |
| Optionality | Toward the lump sum | The annuity cannot be rolled over, so that door closes permanently |
| Plan failure risk | Toward the lump sum, if the cap binds | Usually it does not bind, which most people do not check |
| Your own discipline with a large balance | Honestly, toward the annuity | No arithmetic captures it, and it decides plenty of these |
Why this page states no break-even age. A break-even age is a function of your plan’s conversion factor, your birth date, the annuity form and an assumed return. Publishing one would mean publishing someone else’s pension as though it were yours, next to a decision worth six figures. The method above uses only figures the plan has already put in writing, and it is the same method an adviser would start from.
Step three: the questions that outrank the arithmetic
Run the ratio, then check the gates. Is the plan even permitted to pay a lump sum — §436(d) can bar it or halve it. Will your spouse consent in the form §417(a)(2) requires. If you are between 55 and 59½, does a rollover cost you an exception you already have. And if the money is coming to you rather than going directly to a plan, expect the 20 percent to be held back — that is withholding, not tax, but it is cash you will not have until you file.
The asymmetry that should drive the decision. Take the monthly annuity and you can generally change your mind about how to SPEND it but not about whether to have taken it. Take the lump sum and the monthly benefit is gone. Pension elections are made once, at a stated annuity starting date, and the plan is not obliged to let you unwind one afterwards. That is why the questions worth the most attention are the ones on this page rather than the projected-return arithmetic — the arithmetic can be redone next year, and the election cannot.
A last note on how these offers are framed. A buyout window is usually short, and the shortness is presented as the reason to decide quickly. The rate embedded in the quote is a genuine reason a window exists, and it is also the reason to ask which month it was struck on. Those are two different urgencies, and only one of them is yours.
Sources
IRC §417(e)(3), subparagraphs (A)-(D), quoted verbatim; IRC §417(e)(1) and §417(e)(2) for the consent boundary. Retrieved from the United States Code, July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. A pension election turns on your own plan document, your own health and marital situation, and figures your plan must give you in writing — and this site states no interest rate, no conversion factor and no break-even age, because every one of those is specific to your plan and a borrowed number is worse than none.