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IRS Segment Rates

Segment rates are three interest rates that apply to different payment time horizons: First segment (years 1-5), Second segment (years 5-20), and Third segment (years 20+). Higher segment rates produce smaller lump sums because future payments are discounted more heavily. A rule of thumb: a 1% increase in segment rates reduces lump sum values by approximately 10%. For May 2026, the rates are 4.42%, 5.47%, and 6.31% respectively.

Example

If segment rates drop from 5.5% to 4.5% (a 1% decrease), a $500,000 lump sum offer would increase to approximately $550,000. Same pension benefit, just discounted less aggressively.

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Pension Benefit Estimation

A defined benefit pension pays a guaranteed monthly income for life, calculated as: Years of Service × Final Average Salary × Benefit Multiplier. A typical 2% multiplier over 30 years replaces 60% of your final salary. Only 14% of private sector workers still have access to a pension (2025), but 86% of public sector workers do.