Pension Calculator Formula & How It Works
Monthly Benefit = Years of Service × Benefit Multiplier × Final Average Salary
- Typical multiplier: 1–2.5% per year of service
- Final salary: often average of last 3–5 years
- Example: 30 years × 2% × $60,000 = $36,000/year = $3,000/month
- Survivor benefit reduces your payment to protect your spouse
Defined benefit (DB) pension plans guarantee a specific monthly payment in retirement based on a formula, usually involving years of service and salary. Unlike 401(k) plans, investment risk is borne by the employer. DB pensions are increasingly rare in the private sector but common in government jobs.