Pension vs 401k

[RDC_MKTG]

I plan to work in the public/government sector at some point in the next few years. I would much rather have a 401k vs a pension. Unfortunately most public sector jobs come with a pension and mandatory contributions. A city a few miles from me went into bankruptcy a few months back and the city retirees had their pension benefits cut somewhere around 75%.

I will be writing off my mandatory pension contribution as if it were just another tax, and continuing to put away money in a Roth. If I actually get a pension someday it will just be an extra bonus rather than something I depend on.

I hand it to you for knowing that a Roth is a great choice. However, a private pension has distinct advantages. Tax-deferred growth, tax free access, indexed market gains, guarantees against market downturns, and self completes if you become ill or die.

[Blessed]

In today's day and age, with so many pensions failing (although I suppose they are insured by a gov't entity), I think I'd rather have the 401(k). With pensions, the co. or gov't can decide to renigg(sp?) on their deal later.

My wife actually has both, which is rare for a company.

Hubbys company also has both and we invest 20% in the 401k. We also invest a small weekly amount in company stock and fund our IRA's. The company has been solid for over 100 years but since it is not 100% guaranteed and not employeee funded at all we keep plugging away investing.

[Manthony]

401ks are not better. Pensions are better. This is why employers hate pensions. Because it costs them money. They don't care about you. That's exactly why they switched to the 401k. You have to care about you because no one else will.

401k were never meant to be a retirement plan at all. See below:

"401k accounts were only meant to be supplemental accounts to supplement Social Security and defined benefit pension plans, which by 1985, 90% of employers were using as compared to 10% today.

But employers found these 401k accounts to be much cheaper than having to fund and payout pension plans so they started to scrap them in masse. The mutual fund industry had no complaints as this led the nation’s workforce directly into their products! They jumped on the bandwagon by advertising their products as retirement vehicles, when in truth, they are not. But the 401k going mainstream was such a boon to the mutual fund industry that they don’t want to see any changes to their profit margins, which are extraordinary. This is why their lobbyists fight any attempt at true transparency." -empowernetwork.com/netscript/401k-retirement-a-pipe-dream-for-millions/

Remember the words of Mayer Amchel Rothschild:
”The few who understand the system, will either be so interested in its profits, or so dependent on its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages…will bear its burden without complaint, and perhaps without suspecting that the system is inimical to their best interests” (Rothschild Brothers of London).

[Manthony]

I also have both. What has been said is true... I have no control over the pension amounts that I put in, but plenty of control over the 401K. I'm not sure how I feel about the pension and the fact that they can just "disappear into thin air" but I would be stupid not to take this deal.

You only have control over how much you put in the 401k up to IRS imposed limits. But outside of that, you don't have much control at all over a 401k itself, which can also disappear into thin air. The only "deal" you get with a 401k is a company match, if you have one, and, oh yes, its tax-preferred status. The financial industry needed some kind of incentive to get the masses to switch. That would be it.

[disneysteve]

you don't have much control at all over a 401k itself, which can also disappear into thin air.

How exactly can a 40k "disappear into thin air." That money belongs to the employee, not the employer. Even if they decide to discontinue the 401k plan, the money already invested wouldn't disappear. It might need to be rolled into an IRA but nothing wrong with that.

A pension, however, is a promise to pay money at a future date. That promise can be modified or retracted entirely. That can't happen with a 401k.

[LivingAlmostLarge]

Pensions are way better. If it wasn't better they wouldn't be going away instead of 401k. Pensions even if you contribute you outlive the contributions no problem. But it's a gamble that it won't go away or at least be reduced.

[Petunia 100]

You only have control over how much you put in the 401k up to IRS imposed limits. But outside of that, you don't have much control at all over a 401k itself, which can also disappear into thin air. The only "deal" you get with a 401k is a company match, if you have one, and, oh yes, its tax-preferred status. The financial industry needed some kind of incentive to get the masses to switch. That would be it.

Nonsense.

[Baby_nurse]

There are a lot of knowledgeable folks posting great comments in this post. I'm wondering how many of you are aware of a little thing called a private pension. Has the ability to grow tax deferred, provides tax free access, guarantees against losing your principle, growth tied to multiple indexes AND self completes should something happen to you. Now that's what I call a savings plan!

Isn't a "private pension" the latest term for an annuity?

[Petunia 100]

Isn't a "private pension" the latest term for an annuity?

Sure sounds like an equity indexed annuity to me. Pass.

[bigdaddybus]

Sure sounds like an equity indexed annuity to me. Pass.

yeah, no thanks


My spouse and I both have pensions along with an employer sponsered 401K program with a modest company match. I feel very fortunate to be a part of both programs since I could easily have neither.

I look at my retirement like a diversified portfolio. I will likely retire with 45% of my income coming from my pension, 35% from 401K, 20% Social Security, and 50% from Roth IRA money totaling 150% of my preretirement income. Any of them could "disappear" and I would be fine (since I live on 50%-55% of my income now), but if they are all still around I will have extra $ to give, save, or spend as we see fit.

[bennkar]

401ks are not better. Pensions are better. This is why employers hate pensions. Because it costs them money. They don't care about you. That's exactly why they switched to the 401k. You have to care about you because no one else will.

I've never understood the hatred of 401k's. Yes, if you stay in the same job for > 10 years, a pension is probably a much better choice. But if you switch jobs often enough, the portable retirement plan is easily the better choice. Before starting my current job (2003) I had various plan amounts that totalled around $45,000, and while they are now rolled into my current 457 plan account, I would estimate they have added at least $60,000 to my current stash. I didn't stay in any jobs long enough to vest in a pension (usually you need 5 years).

I would have hated to lose that money just because they only had a pension (or lose any match because they used any matching monies to fully fund the pension). Thankfully my current job has a pension (and I am already vested) and a 457 plan, so I will have the best of both worlds.

Lastly, I do agree, with the new system, you need to worry about yourself as your employer will (or can) only do so much. But that's just personal responsibility, and I take it seriously, even if most people don't.

[disneysteve]

I've never understood the hatred of 401k's. Yes, if you stay in the same job for > 10 years, a pension is probably a much better choice. But if you switch jobs often enough, the portable retirement plan is easily the better choice. Before starting my current job (2003) I had various plan amounts that totalled around $45,000, and while they are now rolled into my current 457 plan account, I would estimate they have added at least $60,000 to my current stash. I didn't stay in any jobs long enough to vest in a pension (usually you need 5 years).

I would have hated to lose that money just because they only had a pension (or lose any match because they used any matching monies to fully fund the pension). Thankfully my current job has a pension (and I am already vested) and a 457 plan, so I will have the best of both worlds.

Lastly, I do agree, with the new system, you need to worry about yourself as your employer will (or can) only do so much. But that's just personal responsibility, and I take it seriously, even if most people don't.

Of course, you generally need to be vested to get the company match in a 401k also but at least you keep your contributions.

[bennkar]

Of course, you generally need to be vested to get the company match in a 401k also but at least you keep your contributions.

I hadn't considered that as all but one of my prior employers set no time limits on the vesting of matching funds. As far as I am concerned, there is no good reason to put a vesting schedule on matching funds in a 401k plan. I understand for a pension, but if they are throwing the investment responsibility onto you, you should be allowed to keep any matching dollars or be allowed to determine which are the funds you invested "their" money in. Or at least you should be required to return only the matching funds, not any gains.

[julieanderson]

It's not a matter really as to which one is better per-say, it's a matter of whom it's with, what the benefits are of each, etc., It is all very subjective.

I would say, when planning your own retirement portfolio that diversifying is key.