How to Calculate Annual Pension

by Ryan Menezes

A company pension offers employees regular payments after retirement. The simplest type of pension, a flat-benefit pension, pays employees a fixed amount of money each month. Other forms of pensions involves additional calculations. A career average pension ties its payments to the worker's total earnings while working for the company. A pension's payments may also increase over time to keep pace with inflation.

Find the employee's total earnings, either by adding individual earnings or by multiplying the average earnings by the number of years that the employee works. For example, assume that an employee's lifetime earnings equal $1,296,000.

Multiply this value by the pension's percentage multiplier. For example, if the pension offers a percentage multiplier of 1.6 then $1,296,000 × 1.6 = $2,073,600.

Divide the figure from Step 2 by 100 to get $20,736.

Add 1 to the pension's cost of living adjustment. For example, if the pension includes a cost of living adjustment of 0.025 then calculate 1 + 0.025 = 1.025.

Raise the answer from Step 4 to the power of the number of years until the year whose payment you're calculating. For example, if you are calculating the pension's annual payment after 10 years then 1.025 to the 10th power equals 1.28.

Multiply this answer by the value from Step 3: 1.28 × $20,736 = $26,542.08. This is the pension's annual payment after 10 years.

About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

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