What Is The Difference Between a 401K Plan & a Pension?

Happy Monday Dolls,

I hope you all had a fabulous weekend.  You know I always have to share with you about my weekends, especially when they are so meaningful to me.  This past Friday and Saturday I had the opportunity to move my son onto his new campus at University of Maryland, Baltimore County.  He transferred from a NY school so he is now a sophomore and although I will miss him, I am ready to watch all of my hard work pay off 🙂  Please say a prayer for him.🤗🙏

Now, to the subject matter at hand.  A lot of times I ask clients if they have retirement savings through their jobs.  When they tell me yes, I ask them if they have a pension or a 401K.  Their response is usually “yes”.  So I follow-up with, which one, to which they reply, is there a difference?  Isn’t it the same thing?”  This is where I come in to help.

401K Plan 💲

A 401 K Plan is defined as a defined contribution plan.  What this means is the employee contributes into specified investments that goes towards their retirement.  They can do so by either choosing their own funds to invest into or using a model portfolio (one that is pre-selected for you based on your investment tolerance level).  When the person retires, they will not have a set amount put aside for them.  It is all based on how your investments performed AND how much you contributed over the years.  Sometimes, if you’re lucky, an employer will match or contribute a certain percentage into your plan as well.  401K Plans, if not planned carefully when you retire, can be gone in the blink of an eye.  It is very important for you to speak to an advisor throughout your working years so you know you’re on the right track.

Pension Plan🏦

A Pension Plan is defined as a defined benefit plan. Look at this as the employer’s way of ensuring that you have money in your retirement for the rest of your life!  With a pension plan, the employee OR the employer contribute, BUT only the employer manages the portfolio of investments. This is a lot safer than the 401K Plan because it’s guaranteeing you an income for the rest of your life at retirement (as long as the company’s investments continue to perform well over the years)🤗

Knowing and understanding what you have are keys to a wonderful retirement.  Roughly 8% of Americans have pensions nowadays because employers don’t wish to set them up for all employees.  It’s more cost efficient for the employer to let the employee set up their own.

Please, remember to stay on top of this.  You are never too young to start planning for retirement.  Once you retire, you want to stay retired!☀️

If you have any questions, please feel free to respond here or email me at: thefinancialcomforter@gmail.com

Next week’s topic:  Social Security – when should you take it?

Have a beautiful and blessed week

Marsha

Changing the lives in our community….one family at a time

 

 

 

 

 

 

 

 

 

 

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