(275) Pension vs 401(k): is a $3,000 monthly pension richer than $900,000 in a 401(k)? Wes compares guaranteed income with savings at 62 and at 85, runs a bad first decade in the market, and shows how inflation can cut a flat pension’s buying power in half. You’ll see why a cost-of-living clause can be worth about $340,000, how a mixed approach works for pension retirees, and three questions to settle it for your own numbers. General education only, not financial advice.
Timestamps:
00:00 Pension vs 401(k): Which Is Richer?
01:58 Pension Equivalent Math: Income, Not the Pile
04:44 Where the Pension Wins
07:04 Where the 401(k) Wins and the Cost-of-Living Clause
10:18 Worked Comparison: Age 62 vs Age 85
14:04 The Mixed Approach Pension Retirees Miss
16:32 Three Questions to Settle It
18:44 Closing Takeaways
Hashtags: #pension #401k #retirement #retirementplanning #guaranteedincome
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The math said it is the same. Drawing 4 percent from 900k is 36k per year. Or 3000 per month, the same as draw pension of 3000 per month. Only difference would be what fee or tax or deduction are pull out.
Cola ?
Mine has COLA and is 5600 a month. It started when I was 54.
my pension has cola! and it's a lot more than $3000 per month.
there is no perfect plan!
Doesn't matter cause u gonna need both!
One pension I started collecting on 6 years ago has no COLA. That is my smaller pension.
My second pension is the much larger one and it has a 3% COLA every January 1st. Also, if I die before my wife she will collect 50% of what my final check was on both pensions.
Both is best
$900,000 is the obvious winner because you can take 4% and increase that annually and be safe for 30 or so years, the only real risk is a massive drop in the market in the first few years, and if the opposite happens, there is a big increase in the market in the first couple of years, you will end up with about $2 million.
The $3,000 a month is just $36,000 per year, and the purchasing power will not increase. It makes those first few years safer, but that is all it does.
Don’t forget the difference between a flat COLA increase each year and one that compounds on the initial principal and all subsequent rate adjustments.
A flat 3% on $3000 a month is $90 a month added each year, but a compounding 3% annually adds 3% to that $90 a month after the first year as well, and adds 3% to the new total each year. It’s impressive how fast it aggregates.
Not everybody with a pension gets compounded COLAs, but those who do are more likely to keep up with inflation.