How to Calculate Taking an Early Pension

by Lee Grayson, studioD

Determining the monthly payments involved in early retirement requires calculations of known expenses and payments, as well as educated guesses about your future monthly bills. In many cases, accepting early retirement reduces the amount of your monthly pension payments and decreases your buying power. The decision must be carefully evaluated and discussed with your financial advisers. Some companies offer free or low-cost seminars explaining their retirement systems. Attendance at one or more of these sessions helps collect vital information to evaluate the decision to retire early.

Calculate your regular required monthly payments and long-term debts. Examine your home mortgage to calculate future increases over the lifetime of the loan or look at the average rent increases in your monthly rental payments. Factor in any vehicle payments or new car purchases required during your retirement. Use the inflationary increase for your utilities over the last five years to estimate future utility increases during retirement.

Review your retirement savings accounts and investments. Calculate the total amount in all traditional, Roth and SEP IRA accounts, any 401(k) or 403(b) accounts, and funds set aside in other savings accounts for your retirement. Your retirement funds might also include employee stock ownership or profit sharing. Examine the details of these accounts to determine the amounts accumulated in each and the age qualification, if any, to begin removing funds.

Calculate the employment pension payments for your targeted retirement date. This requires working with an official representative from your pension plan. Pension plans use a sliding formula incorporating the number of years on the job; salary over the last few years on the job; age at retirement; and any additional payments made to the fund to calculate your exact pension payments.

Determine any government retirement benefits, including payments from Social Security and Medicare plans. Request an official calculation of your benefits from the Social Security Administration at least a year before your planned date of retirement. Review the federal requirements for retirement payments listed on the official Social Security and Medicare documents.

Design a 12-month spreadsheet with your monthly benefit payments and debts to evaluate your early retirement decision. The figure derived from this spreadsheet provides your estimated pension payment. Do the same calculations for five and 10 years to determine any gap in income and debt levels.


  • Meet with your employer's pension representative five years before taking retirement and then again two years before your target date. The information received during these meetings helps focus your retirement program on concrete goals.


  • Carefully examine the language used in your tax-deductible retirement accounts. Your pension may allow payments before the federal retirement age, but other retirement accounts may require payment of significant penalties to remove funds.

Items you will need

  • Copies of pension deposits
  • Retirement account statements
  • Retirement savings statements
  • Monthly bills
  • Spreadsheet software or paper and pen
  • Calculator

About the Author

Lee Grayson has worked as a freelance writer since 2000. Her articles have appeared in publications for Oxford and Harvard University presses and research publishers, including Facts On File and ABC-CLIO. Grayson holds certificates from the University of California campuses at Irvine and San Diego.

Photo Credits

  • George Marks/Retrofile/Getty Images