401k? Or pension?

I'm not an investment advisor, but I did get an economics degree at one time. Late to the party..... but here goes.

The average pension fund in this country calculates it's benefits at an annualized return of about 6%.

The average stock market return over the last 100 years is right under 12%. Per year.

If you leave a job, and you can take your pension benefits as a lump sum now, take it and roll it over into an IRA, invested in stock mutual funds. If you are younger, pick some aggressive funds, and you'll do even better than the average of 12%.

Yes, the stock market goes down, regularly. Nobody loses all their money if they are invested in a range of stocks (i.e. mutual funds). Even the famous "crash" of '29 recovered in just over 10 years. The infamous "crash of 2008" recovered in a few years. Today, the market is nearly three times higher than before the crash in 08. What's a few years if you are investing in retirement?

So, let's say you have a $50,000 pension benefit and you are leaving a job. Let's say you are 45. If you leave that pension benefit with the company (pray they don't go broke), that money earns about 6%, and by age 70, that benefit turns into $ 214,593.

Take that same $50,000 with you, and invest it inside an IRA in mutual funds for an average return of 12%, and that money turns into.....

Really, it does...

$850,003.

You know the best part? When you die, that money doesn't go away. It can send you grand kids to college, or buy their first house, or allow them to stay home to raise their children. Pensions die with you.

Now, going back to that pack of smokes a day. The national average price for smokes is $5.51. 365 days a year, $2000 for easy math. Invest that from age 20 to age 65 in the stock market, and you get......

Are you ready for this?

I mean, are you really ready to find out what that pack of smokes is costing you?

$3,042,495.

That's an annual income of $300K at retirement, if all you do is invest the cost of a pack of smokes or coffee and a pastry a day. Why would you worry about a pension?

You know what's even better? If you put it into a ROTH IRA, all that money for retirement is TAX FREE. Completely, utterly, totally tax free.

 

In other words, were living by a shoe string!!! The company sells out or the union big wigs steal from the pension fund, and poof, its gone! The market crashes, and poof, its gone!

I think the thing is to get your kicks while ya can! Never know what tomorrow brings!!

 

I just started with UPSF and they are one of the few companies left that has a pension for its employees. They are doing away with it for the managment, and I feel its only a matter of time, maybe 10 years down the road, before they try and take it away from the drivers. I've thought of the same thing as you. Should I stay with a company because of the pension, or seek an opportunity with one that offers a great 401k plan. For right now, I'm sticking with the pension and will contribute to my 401k which they DO NOT match.

What I would recommend is see if you can get a free consult with a financial advisor. They can help break down the dollars and cents for you and show which road might work better for you.

 

I brought that pack of smokes up just to show saving should not be such a struggle that you can't do it. My point to everybody in here and to youngsters is save NOW. No matter how much a struggle it is at least you have youth. You can not afford to put this off. This is why retirement planning should go into all job decisions.

 

You don’t need a degree in finance to look at proven track records of acceptable ROI and determine with simple math if you’re going to be able to live on that.

 

And a mutual fund with a 20+ year track record of double digit gains(even in 2001/2008/black Monday) is a pretty safe bet. That said... those same mutual funds will never go to zero because they are spread over dozens if not hundreds of stocks. They aren’t all from the same sectors, for instance when the .com bubble burst, or the housing crash... one of the funds I am invested in has about 12% of the fund invested in Amazon. To me, however good Amazon is going, I still consider that to be the riskier fund to be invested in because the risk isn’t as spread out.

But again, over the last year and a half I’m getting 23% returns averaged across 4 mutual funds. Dropping 2k per month in them. Hell an S&P index fund would be preferable to any pension. And bonds are a great way to lose about a percentage of your investment year over year. They don’t even keep up with inflation. Terrible product unless you just won the lottery and you’re being educated on how to properly invest your winnings.

 

Yeah, the last 18 months have been really, really, really good. Then again, we had the "lost decade" of the early 2000's, and things pretty much rocked along at a miserable 5 or 6% annual rate in the stock market.

Oh, rubbish. Again, in "the apocalypse" that was 2008, the stock market only lost about 50%, and that was made up in just a few years. People that "lose all their money" in the stock market do not diversify, purchase single stocks, borrow money to buy stocks, or all three. There is no "poof, gone". It's a roller coaster. You don't get hurt unless you jump off before the end of the ride.

If the stock market were to crash to zero, you would have much bigger problems, because there would be no American economy. No Home Depot, no Walmart, no GE, no Ford, no Bank of America, no Apple, no Amazon. America would no longer exist.

But, for just that reason, about 35% of my investments are in overseas stock mutual funds. Just kidding, it's there because companies like Alibaba that are in that mutual fund made an average of 40% last year.

For those that don't feel comfortable in the stock market, other investments are nearly as profitable, such as income producing real estate (residential or commercial rentals). I don't want to mess with renters, so I don't partake, but many people do, and it works well for them.

 

The 4 funds I am invested in have never performed under 10% ROI. That is over 30 years in one case. They didn’t lose money on black Monday, 2001, 2003, 2008... they gained money at over 10%. In the entire history of the S&P500, it has performed at 11%. The S&P500 lost money during all aforementioned periods.

My funds did not. You know what did though? Most pensions. You act like pensions aren’t an investment that can go to zero. They most certainly are. And since you have absolutely ZERO say in how they are invested and they aren’t invested with a specific personally desirable lifestyle in mind, you’ll have no idea of knowing how you’re going to be come retirement. I know that I’ll have at a minimum 9 million dollars for retirement. And that is assuming I don’t get a single raise in the next 30 years lol

 

6% doesn’t even beat inflation. Bury your money in a pickle jar in the back yard.

 

Pensions are not quite as bad as you would make them out to be, however you are correct that the monies set aside to pay them belongs to the company. Most have these monies invested. To be honest a pension is only as good as the company. The thing I have against pensions is you are locked into a set income. My mother lived from 1997 till 2010 on my fathers WR Grace Pension and Social Security. Her health insurance was paid out of that pension from 1997 till 2000 when she turned 65 and went to Medicaid as primary and I had her dropped. From 1992 till he died in 1997 both my parents lived on his WR Grace pension. Pensions are generally OK, it's just there are better options. However know this. There is risk involved with any type investment. This is why I say get a good planner.