In many experts’ eyes, America is facing a retirement crisis. Very few people have pensions to look forward to these days, many with 401(k)s are not taking full advantage of them, and many workers, such as the self-employed, are not offered either retirement vehicle.
What’s a pension?What’s a 401(k)?Pension risks vs. 401(k) risksPension investment options vs. 401(k) investment optionsExpected income from pensions and 401(k)s
Calculations by author.
Pension tax treatment vs. 401(k) tax treatmentPension vesting vs. 401(k) vesting Pension liquidity vs. 401(k) liquidityPension problems
401(k) problemsMake the most of your pensionMake the most of your 401(k)Participate! A 401(k) will offer no help for your retirement if you don’t use it or if you underuse it.Grab all available company matching dollars: Contribute enough to your account to grab any available matching funds from your employer — it’s free money.Don’t overload your account with your employer’s stock: Yes, you probably know your employer better than any other company, but even the best companies can fall on prolonged hard times — or can fail. And your employer already provides much, if not most, of your financial support. If you’re depending on your employer for your income, as well as relying on it for your retirement, you’ve got a lot of eggs in that one basket. Try not to keep too much of your net worth in company stock — perhaps not more than 10%, at most.Don’t cash out your 401(k): Cashing out deprives your retirement nest egg of valuable dollars. Even if your 401(k) only has $20,000 in it, if it can keep growing for another 25 years, it would amount to about $137,000 retirement dollars (assuming an 8% average annual growth rate). Instead of cashing out, consider rolling over the funds in your 401(k) into an IRA, where fees might be lower and investment …read more