We have a pension & 2 401-k plans.?

Question

What is the difference between them? We get quarterly statements from all of the programs. The pension statements have a balance as to what our check will approxamatly be when we retire. We are both still young ( in our 30's). But this retirement stuff can be confusing! I'm pretty sure that when my husband and I do retire social security will not be there. Thanks for any advice!

Answer 1

A pension plan is a defined benefit plan. For you on the receiving end, that means your benefit, or monthly payout in retirement, is determined by the plan. The benefit is defined. As you stated, your statement indicates what your benefit in the future will be.

Your 401(k) plans are defined contribution plans. In these plans you, and possibly your employer with matching contributions, determine how much is put into the plan. The contribution is defined. The benefit is not. The outcome of how much the value of the plan will be in the future is dependent of the performance of the holdings selected in your plan. Typically, you will have a number of choices as mutual funds with stocks, bonds and a fixed or stable account. Your statements will reflect your contributions and current account balance.

In 401(k) plans you, the participant, determine what investment selection to make. It is worth your time to evaluate your risk tolerance and time frame, etc to help determining your selections. If you are not inclined toward this evaluation, you may wish to consult with a professional financial advisor, as a CFP or certified financial planner, for advice.

Answer 2

A pension is a 100% company paid retirement plan. And only secure as the company you work for (in America, not secure at all). Think Enron, those employees are screwed.

A 401K is generally a partially employee funded (out of your paycheck) retirement savings plan. After you are totally "vested" the money is yours for life. Not even bankruptcy can touch it. The only "risk" is that they are generally funded with stocks and the market goes up, and the market goes down. But over 40 or so years, your risks are quite less as nearly no stock is not higher now than it was 40 years ago.