Pension vs 401k

Pension vs 401k: What You Need to Know

When thinking about retirement, there may seem like there are a lot of different paths to take. The best way to make good financial decisions for yourself and your future is to be well-versed and educated in personal finance topics, such as retirement plans. In this blog post, we are breaking down pensions vs 401k plans, two common retirement plan options, to help you better understand them.


A pension is a retirement fund that an employer contributes to while you are working. In retirement, the funds from this provide you with guaranteed income, typically on a monthly basis.

There are several factors that determine how much income you receive in retirement, including: your age, how long you have been with the company, and your income while working. Additionally, different companies may have rules about pension eligibility.

Pensions are being phased-out across the country and it is becoming increasingly hard to find companies that still offer them. However, if you like the idea of a guaranteed income in retirement, which most people do, an annuity can be an alternative and acts as a “self-made pension.”

401k Plans

A 401k plan is a retirement fund that is offered by your employer and is funded by you. You are responsible for making all of the investment decisions, therefore you take on all of the risk associated with it. Even if your company matches your contribution, the burden of figuring out how much to contribute to save enough for your retirement falls entirely on you.

Additionally, 401k plans are controlled by the government and they make all the rules. The government dictates when you can take money out of a 401k and how it will be taxed. They can also change these rules, meaning that you may not be able to take out your money at the age you expected, or you may be taxed differently than you had planned.

What you should know

The best route to take when planning for retirement is extremely dependent on your situation, preferences, and retirement goals. We are big proponents of keeping your wealth in motion, as well as devising a retirement plan that doesn’t require you to take a pay cut in retirement. It is always best to talk through these decisions with a financial advisor so that you can set yourself up to be smiling through your retirement! In need of retirement planning or wealth management advice? Visit our website to learn about our services and give us a call to schedule an appointment.