Pension Calculator Formula
Understand the math behind the pension calculator. Each variable explained with a worked example.
Formulas Used
Annual Pension Benefit
annual_pension = final_salary * years_of_service * multiplier / 100Monthly Pension Benefit
monthly_pension = annual_pension / 12Income Replacement Ratio
replacement_ratio = final_salary > 0 ? annual_pension / final_salary * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
final_salary | Final Average Salary(USD) | 75000 |
years_of_service | Years of Service(years) | 25 |
multiplier | Plan Multiplier(%) | 2 |
How It Works
How Pension Benefits Are Calculated
Most defined-benefit pensions use this formula:
Annual Benefit = Final Salary × Years of Service × Multiplier
The multiplier is typically 1.5% to 2.5% per year of service. A 2% multiplier with 25 years gives 50% income replacement.
Worked Example
$75,000 salary, 25 years of service, 2% multiplier.
final_salary = 75000years_of_service = 25multiplier = 2
- 01Annual pension = $75,000 × 25 × 2% = $37,500
- 02Monthly pension = $37,500 / 12 = $3,125
- 03Replacement ratio = $37,500 / $75,000 = 50%
Ready to run the numbers?
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