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A patron asks: “Dr. Wolff, please address how the move from pensions to 401ks has impacted people, especially in these volatile times.”
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In the world of retirement planning, there are two common options: pensions and 401Ks. Each has its own set of advantages and disadvantages, and the choice between them can be a difficult one for many employees.
Pensions are a traditional form of retirement plan in which an employer promises to pay a certain monthly amount to an employee upon retirement. The amount of the pension is usually determined by a formula that takes into account the employee’s length of service and salary. Pensions are typically funded by the employer, meaning that employees do not have to contribute to the plan.
On the other hand, 401Ks are a type of retirement plan in which employees contribute a percentage of their salary into a retirement fund, which is then invested in stocks, bonds, and other assets. Employers may also contribute to the plan, often matching a certain percentage of the employee’s contribution. 401Ks are portable, meaning employees can take their savings with them if they change jobs.
The question of which option is better depends on several factors, including the stability of the employer, an employee’s investment expertise, and their own financial goals. In general, however, pensions tend to offer the most security and stability, while 401Ks tend to offer more flexibility and control over investments.
Pensions are backed by the employer and are guaranteed by the Pension Benefit Guaranty Corporation. This means that even if an employer goes bankrupt, the pension fund is still protected. 401Ks are not guaranteed and are subject to fluctuations in the stock market. This means that employees need to be knowledgeable about investments and take an active role in managing their funds.
However, 401Ks do offer more flexibility, as employees have control over their investments and can choose how much they want to contribute. They also have the ability to take out loans against their savings in certain circumstances.
Ultimately, the choice between a pension and a 401K can be a complicated one, and employees should thoroughly research their options and speak with a financial advisor before making a decision. AskProfWolff is a platform that can provide answers to some of these questions, so that individuals can make a more informed decision about their retirement planning.
Curious how the “professor” failed to mention the downside of pensions. California taxpayers owe, to date, $1.7T(that’s with twelve zeros) in unfunded public pension liabilities. That is a tax debt of $39K hanging around the neck of every Californian as of September 2022.
I also thought it curious the so-called professor forgot to mention a majority of private employers match employee 401(k) contributions to some degree.
With 401(k)s the employee has full control of their retirement investments and can transition to another employer and bring their 401(k) with them as opposed to pensions that do not.
The only moral way forward for California is to end all pensions for new government employees and start them in 401(k)s. However, the mafia unions that control California and are primarily responsible for the massive debt will never allow this to happen. Completely immoral.
The City of Stockton recently filed for Chapter 11 bankruptcy and completely eliminated all employee retirement medical coverage. Wolffe oddly left that inconvenient truth out in his defense of pensions.
No, Wolffe is woefully ill informed and has an immoral position on pensions vs 401(k)s.
The reality for this Gen-X worker: between 2008 and 2020, I now have a 200.5K. Doubt I'm different than most.
Mmm so if a car company lets say can’t compete then the pension goes belly up and the workers are left holding the bag?
Why should an employer provide you for the rest of your life? A business is in competition every day to succeed and to stay in business and provide for today's employees. BTW, where do you think pensions invest, do you think it is put under a mattress?
Too often I hear working people (my own "union siblings" even) parrot the bullshit that pensions were "unsustainable." And therefore they are content to risk gambling their future away in the casino. I can't convince them otherwise that we have been ripped off.
Unfortunately, this guy is stuck in the 1970s. The stock market went back up(like it always does) and people are millionaires from investing in their 401k. With pensions the opportunity for growth is limited in so many ways. You will find many more millionaires who have have invested in the total stock market (%10 growth a year on average) than the Annuity folks who relied on their pension plan that underpaid them
And most 401ks are weighted to be extremely conservative by default and result in minimal gains. If you don't change your allocations out of bonds and nonsense that returns 2% in 5 years, you're not going to make very much. Put it all in the S&P 500 and you'll make about 10% a year. But they don't tell you that. They make it "safe" for you.
And when markets crash, it’s an opportunity to double and triple your account! Fear mongering 101… look for fiduciaries not financial advisors for advice!
Let me guess this guy is a financial advisor? Fear mongering! I rather run MY money, than have the government run it! Social sec is a perfect example… would you rather have $1800 until u die or whatever your contribution was for 45 years (probably in excess of 1 million dollars)? It’s a no brainer! It’s just that the government knows that if they give everyone 1 million dollars, 80% of ppl would blow it in 3-5 years so they prefer spoon feeding us little by little! Pensions are dinosaurs, they are very expensive insurance policies… plus, I believe that trusting the government with your money presents more risk than managing it yourself (assuming you’ve spent a little time doing some reading about how the stock market works)!
Proff Wolf I disagree here. Pension plans are only as good as a companies finacial stability. Unless you work for the federal government I think its a mistake to choose a pension fund. Look at GE an amazing American company ruined by verity of reasons including poor managment and greed. Maybe they'll pull through but if they don't then all those people lose their pensions. Penions not 401k's are a very risky proposition. yes the value of a 401k changes but when you retire you don't suddenly withdraw the whole thing you live off the dividend payments and interest that the 401k generates. But even then you have the flexibility to withdraw your cash should you chose to do so. As to the managment fees thats also not really a problem you can find plenty of mutual funds that charge less much less than .1% of the principle amount to manage your money. Frequently they return 8-10 annually! Its a great way to get very rich. Although it does take patience.
I have both a pension and Social Security benefits,love it.
How many people are now millionaire's from pensions?
Rich ,do you realize you resemble Red Auerbach who coached and was then GM of the Boston Celtics.
I have a pension, 12 years with my employer, and 16 and change years to go. If my employer offered me a 401k, allowed me to roll my pension contributions into the 401k offered me a match of 5+%" I would take it in a second.
FedEx is giving us the opportunity to switch to a 401k from our current pension. I have 15 years left. I already have a good 401k. They are offering an extra% to go towards 401k. Because of virus, it is being put off until next year. People think I'm stupid for wanting to stick to pension. Take a look at your 401k today and figure out which is better
Would somebody tell the news networks that the Trump is pushing the drug that he wanted because he has money invested in that drug and they're just doing all these stupid reasons like older my enemies it's why I'm doing this no he's pushing it because he has money in it
A similar program was established in Australia by the Labor Party–it's called Super.
Financial support in old age should be a purely government function. No businessman should be involved in retirement. By the same token no business people should be involved in health insurance. It should be done exclusively by a government agency. If this were done, business could do what it should do, business! It would make business more efficient too boot. 401 plans are a means of generating fees for wall street and its servants. The concept effectively "privatizes retirement and allows people to make money off the "internal colonials" that the average American now represents to the "imperials" of our capitalist system. The American population is seen as a colony to be exploited by our capitalistic lords.
Snake oil peddlers like Wolff are the the last people you want advice about pensions and 401Ks.
The average time people spend at a single company is 2-3 years. Pensions make zero sense in today's economy…
The 401k is the poor man's attempt at gambling in the stock market.
Check out history of trade deficits by country. Official Government website. Trump is a failure. Mexico up 60%, Russia up 90%, China hit all time high under trump. A vote for trump is a vote against America.
https://www.census.gov/foreign-trade/balance/index.htm
1-american workers are skrud
2- moving from company pension to 401k dos not move the risk. is the company gose under the worker loses the pension but not the 401k.
the 401k model is used in most countrys but insted of evry worker alone pension fundes pull all the moune from all workers
Many construction workers still get pensions. I signed up for the electrician pension and its great I am promised a fixed amount of money no matter how badly the economy is doing. My employer contributes a minimum amount and I can choose to contribute more, if I go with the minimum employer contribution I could retire comfortably at 65 If I choose to contribute more I could retire at 55 or 60. I am alittle worried that the electrician pension will fail like so many other pensions so half my retirement contributions go into a Roth IRA. Social Securtiy + Pension + Roth IRA is alot of money and I am on track to retire a few years early. When the economy is bad I will live off social security/pension and not touch the Roth. Alot of people are afraid of unions they think unions are corrupt and its not fair that everyone in the union makes about the same wage. The union is alittle corrupt and even though we make similar wages our wages are higher than non-union workers, and we do have a say in negotiating wages/benefits. In my opinion the good outweighs the bad and most workers would be better off if they unionized.
When I retired with pension about 10 years ago, right at that time same company canceled pension for new employees, and they have been trying to buy my pension with a lump sum money, so they don't care for well being of their employees after we retire, they use us when we are usable, after that, they would like to see us under the ground as soon as possible, especially if we have pension.
First time I've disagreed w prof Wolff. Pensions = no control over investments, can be gambled away by management. 401K = my account, I can move money among portfolio.
How many pensions disappeared during 2007 downturn? TONS
How many 401Ks disappeared? ZERO
I'll take 401K anyday
To be honest. Size is everything a generous match on the 401k is better than the current 401k, and better than some pension, because a pension can be retracted. Unfortunately companies will not get more generous any time regardless.
Life insurance IUL is much better option than 401k
No money for PPE's but they spend money on this:
https://www.uppermichiganssource.com/content/news/F-16-flyovers-planned-Wednesday-over-western-UP–570400321.html
I know Something was very wrong with the economy 2 years ago. I worked in a great hospital for 28 years in my last 1.5 the hospital lost millions. So, my hours were cut drastically, many staff were fired, even 7 doctors. Our politicians cut Medicaid and hospitals. The board of directors, mostly MBA’s cut our hospital to bare bones. So, I got the hell out dodge, I cashed out my pension and rolled over my 401 and got out of all stocks and retired early. I tried to tell my friends who are retirement age get out , if possible. I was very lucky
The other thing with 401(k)'s, it puts more workers' monetary interests in line with the capitalist class. Since that money is in the stock market instead of being earned through labor benefits, it means more people will be concerned with the growth of business and profits instead of the interests of labor.
401ks suck. Give me a good old fashioned pension anyday.