Ep. 36 Pension vs 401k - Which is More Valuable? In this episode of the Red Barn Financial Podcast I will compare and contrast a pension and 401(k) plan. At their basic level a 401(k) is a stack of money and a pension is a guaranteed paycheck.  Which would you prefer $200,000 in cash or $1,000 per month for the rest of your life?  Assuming you were going to spend the $1,000 per month and you were going to earn 5% on your $200,000.  After 24 years your $200,000 would be down to $0.  Your pension would keep on paying and likely it would also have a built in cost of living adjustment.  In this scenario the pension would be the better choice. In contrast, if you took the $200,000 and you died 2 years later your family would have about $190,000 in cash left, whereas a pension that pays you for life you would have nothing to give to your family.   Is there a third solution that can do both?  There are some strategies that can.  Reach out and I'll be happy to share them with you whether you want to work with me or not. To learn more about Red Barn Financial visit us at www.redbarnfinancial.com call 615-619-6919 or email [email protected]    Here is a summary of this episode: Let’s delve into the comparison between pensions and 401(k) plans. As a financial advisor, I’m here to shed light on the differences and help you make an informed decision. Pensions vs. 401(k)s: Understanding the Basics What is a Pension Plan? A pension plan is a retirement-savings arrangement typically funded by an employer. Here’s how it works: Employers contribute to the pension plan on behalf of employees during their working years. The amount an employee receives in retirement depends on their years of service and earnings over time. Payouts from a pension plan are usually guaranteed and continue throughout the retiree’s life. What is a 401(k)? A 401(k) is a workplace retirement plan that allows employees to save for retirement with tax advantages. Key features include: Employees contribute a portion of their salary to the 401(k) account. Employers may match a portion of these contributions. Individuals manage their 401(k) investments, choosing from a range of options. Pros and Cons Pensions: Pros: Guaranteed income for life, regardless of market performance. Cons: Limited control over investment decisions, and payouts may not keep pace with inflation. 401(k)s: Pros: Personalized investment choices, potential for higher growth. Cons: No guaranteed income, subject to market fluctuations. Historical Context Years ago, companies commonly offered pensions to employees. These defined benefit plans promised a specific payout based on years worked and earnings. However, due to financial complexities and market volatility, many companies shifted to 401(k) plans. These defined contribution plans allow employees to actively manage their investments but lack the guaranteed income of pensions. In summary, pensions provide security but limit control, while 401(k)s offer flexibility but come with market risk. Consider your personal circumstances and preferences when deciding which retirement plan aligns best with your goals.    

Ver todos los episodios