## Pension Calculator

Pension funds are contributed by employers to fund for the retirement of the employees and this pension calculator shall be useful to calculate the eligible amount that the employee is eligible for.

#### Pension Calculator

AS x F x N

- AS is the average salary per company rules
- F is the factor in terms of percentage which is again decided by the company
- N is the number of years worked in that company

### About Pension Calculator

The formula and steps for calculating Pension as per below:

**AS * F * N**

** **Wherein,

- AS is the average salary per company rules
- F is the factor in terms of percentage which is again decided by the company
- N is the number of years worked in that company

Pensions are the type of retirement plans that are funded by the company and are paid to the employees either in lumpsum or in installment until death in case it is sold to the insurance company. The pensions amount varies from company to company and pension calculator will be used to compute the eligible amount that the employee will receive which again depends upon a number of years he has served the company.

Also, the percentage amount or the factor also varies from company to company and that will determine the amount calculation. Pension is usually paid in two ways one is lumpsum and another one is in the form of an annuity if the employee desires so.

### How to Calculate using the Pension Calculator?

One needs to follow the below steps in order to calculate the amount of pension.

**Step #1: **Determine the average salary of the employee. The salary number that will be used to calculate will be the salary that the employee would be eligible to receive just before his retirement.

**Step #2: **The Average salary will be mostly the highest-paid years and generally its average of 3 years or more depending upon the policy of the company.

**Step #3: **Add the salary for those years and divide the same by the number of years the salary has been taken into consideration.

**Step #4: **Now one needs to determine the factor or the percentage that shall be paid by the company as a pension.

**Step #5: **Now Multiply the value arrived in step 3 by the factor that was determined in step 4.

**Step #6: **In this step determine the number of years that is served by the employee for the company in which he shall be eligible to receive.

**Step #7: **Take the product of values arrived in step 5 by the number of years that was determined in step 6 to get the amount of pension.

**Step #8: **Divide the value arrived in step 7 by 12 to get a monthly pre-tax pension amount.

### Example #1

Mr. A aged 58 years has been working in a multinational company for around 25 years and will be retiring at the age of 60. The company has the policy of contributing towards pension funds for those employees who have worked a minimum of 10 years in the company, and they have determined to pay 0.05 percent of the average of 3 years’ highest-paid salary during his entire tenure. Below are the details of Mr. A’s top 5 years’ salary and bonus that he received during his tenure (per annum basis):

Based on the given information and policy of the company you are required to calculate the amount that Mr. A is eligible to receive the pension amount.

**Solution:**

We are given the factor as 0.05 percent and a number of years served by him would be 25 years plus 2 years that are remaining in his employment which equals 27 years.

However, we now need to determine the average salary of Mr. A and for that, we need to take the highest of below three and take the average of the same.

Hence, we shall take an average of year 2, year 3 and year 5

- = (
__1__25,000 + 121,000 + 121,000) / 3 - = $122,333,33

Now, we can use the below formula to calculate the pension amount.

**Pension formula = AS * F * N**

- = 122,333.33 x 0.05% x 27 years
**= $1,651.50**

Therefore, the monthly pension amount would be

- = $1,651.50 / 12
- = $137.63.

### Example #2

Company MNC has the policy for funding the pension of their employees for those who have served the company at-least for 5 years and the factor that it uses to determine the pension is 2% and it is based upon the estimated average salary that will be drawn during just before the retirement. Mr. Cane has been serving company for around 8 years and currently, he is drawing an average salary of $10,000 per annum.

The actuary person determines that the average salary for the department in which Mr. Cane is working would be around $32,000 per annum and estimates that the person will work for an average of 20 years. Based on the given information, you are required to calculate the pension amount that Mr. Cane could be eligible for.

**Solution:**

We are given the factor as 2 percent and the number of years served by him would be 20 years.

The average salary determined by the actuary person is $32,000.

Now, we can use the below formula to calculate the pension amount.

**Pension = AS * F * N**

- = 32,000 x 2.00% x 20 years
- =
**12,800**

Therefore, the monthly pension amount would be

- = 12,800/12
**= 1,066.67**

### Conclusion

Pension calculator as discussed above can be used to calculate the amount of pension that would be received by the eligible employee during the time of retirement. Any decision made related to a pension cannot be before the retirement, hence those needs to consider carefully. Also, the amounts can be transferred to IRA accounts without any tax consideration.

### Recommended Articles

This has been a guide to Pension Calculator. Here we provide you the calculator that is used to calculate the eligible amount of retirement pension that the employee will receive along with some examples. You may also take a look at the following useful articles –