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Just curious...tho pensions are “old school”, are people more financially comfortable mentally if they have a pension vs a 401K? It seems that pensioners puff up declaring having one but they have zero clue about 401Ks and how one can be expected to be responsible for their retirement income. Always an interesting convo. I mention that I could never be held hostage to the promise of a pension if it means I have to stay at one employer for 30 years to earn the pension. This is usually a convo with a government worker.
Just curious...tho pensions are “old school”, are people more financially comfortable mentally if they have a pension vs a 401K? It seems that pensioners puff up declaring having one but they have zero clue about 401Ks and how one can be expected to be responsible for their retirement income. Always an interesting convo. I mention that I could never be held hostage to the promise of a pension if it means I have to stay at one employer for 30 years to earn the pension. This is usually a convo with a government worker.
There are pros and cons of both. Wife has a decent pension and we also have significant 401K monies. One pro and con of 401K is that you have to manage it and the emotions involved. Another huge pro of the 401K is that you can pass it on to your children.
I like having both a pension and 401K...plus our social security when we are eligible to receive it.
My wife and I work public sector in the state of Minnesota. So we will get what I consider to be the last of the really good pensions within our state (law change in 1989 made early retirement before age 66 punitive) so we will be able to retire at 55 & 57 in a couple years with basically half of our average salary based on our highest 5 consecutive years, which are usually a persons last 5 years of work. I’ve spent my career in regulatory and enforcement divisions and have enjoyed my job. My wife has been in Information/Technology and though she has been relatively highly paid for a public employee has turned down numerous more lucrative and interesting options due to the pension handcuff. I think newer employees who work entire career with my state would be better served in a 401k type system with a match provided they invested it at same percent as the existing pension system and achieved a market return. Where a public pension is a great deal is foe someone who comes from the private sector in their mid 40’s (with a healthy 401k account they let grow) and then works for state 20 years retire at 66 with a pension of 34% (1.7 x 20 years)of their high 5 salary with no huge penalty for retirement before age 66. Best of both worlds.
On another tack I find it interesting that many people are envious of pensions and the guarantee of not running out of money and having to manage portfolio distribution but few people actually consider purchasing one via a single premium income annuity. Pros and cons.
Many people that have pensions also have 401k, 403b, 457, etc. The difference really is that the numbered accounts are somewhat within your control as far as which funds they are in, within those permitted, and you can control your contributions. With a pension the contribution is mandatory and sometimes partially paid by the employer (similar to a 401k match). A pension is a defined benefit plan, so it will continue for life at a set rate for life (ignoring COLAs for the moment), while a numbered account can certainly run dry if not managed throughout retirement, or if the market goes through an extended down period. My DH had a pension and a small 457, and we managed his 457 to pay out between the time of his retirement (55) retirement and SS eligibility (62) to cover that $$ gap.
I'm not sure what OP means by people with pensions "puff up" when "declaring having one". ??? I have one, and I don't go around "declaring" it. It's nobody's business where my retirement income comes from, and I don't really talk about money issues unless I am answering a very specific question. I definitely don't discuss the numbers! Pension envy is real and it actually makes me even less inclined to discuss it. (I discuss it here anonymously, but IRL I would be very uncomfortable revealing all that I do on C-D.)
I never thought of my job as "being held hostage" for a pension. Most government pensions are portable within the government system. What I mean by that is they can shift from working at one state or city/county agency to another, say from the DMV to Tax Board, or Dept of Forestry, County Planning Commision, or any other agency within the same pension system, even from one end of the state to the other. It's hardly being a hostage, it's more like an advantage, as many of those jobs are only available through promotion from other government positions.
Pensions are forever. A 401k is not. I worked for two government agencies at a lower pay scale, compared to what I could have made in the private sector, because of the promise of a pension. A pension requires no thinking or strategy.
And to the OP, most pensions only require 10 years to be vested. Some outfits only 5. Not 30 years.
Most people that have a pension will still need a 401k to fund their retirement so I don’t see it as one vs the other but another tool that you can have in retirement.
Also most people that receive a pension didn’t have their employers matching their 401k contributions.
Social Security is a form of pension. Our plan is to put a big dent in our 401(k) accounts to delay collecting Social Security until age 70. It knocks all the "run out of money" risk out of the equation. Assuming we're both alive, our combined Social Security checks will be a bit more than $86K per year with no state income tax and favorable Federal income tax treatment. COLA-protected. The 'death of spouse' scenario is less rosy but we have enough other assets that the surviving spouse will be fine.
Pensions are forever. A 401k is not. I worked for two government agencies at a lower pay scale, compared to what I could have made in the private sector, because of the promise of a pension. A pension requires no thinking or strategy.
And to the OP, most pensions only require 10 years to be vested. Some outfits only 5. Not 30 years.
Pensions are forever, unless your pension source goes bankrupt. I have one with the state. Should be good, and when I die, my wife gets it for her life. I also have deferred comp that I haven't touched yet. Maybe next year. To this point, we try to keep our yearly income around $66k so my DW qualifies for Obamacare. Next year that won't be a concern.
There are pros and cons of both. Wife has a decent pension and we also have significant 401K monies. One pro and con of 401K is that you have to manage it and the emotions involved. Another huge pro of the 401K is that you can pass it on to your children.
I like having both a pension and 401K...plus our social security when we are eligible to receive it.
Bada Bing!
True words and why so many of have both.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I agree the more sources of income the better. I’ll have a pension, 401k, 457, and SS. My wife has a pension and SS. With all of that we will still only have about 60% of our current income, but with less expenses should be comfortable. Pensions are not what they used to be, with the plans changing for the worse over the years. I know people that retired in the 80s on older plans that with SS took home more than when they were working.
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