Back in the days, around the industrial age, companies used to invest in their workers more than they do today. If you needed a certain skillset, the company trained you for it. Companies did not hesitate to invest in their workers as the commitment between the worker and the company was assured. The day one left the company, was the day that worker retired. To reward him for his loyalty, he received a pension for life. At the time, life insurance companies were contracted to manage the workers’ money where they were guaranteed a certain income during retirement.
But a shift happened. Wall Street was able to convince companies that it was in the companies’ best interest to have Wall Street manage their employees’ retirement investment. So pensions were replaced with 401ks. And today, companies that offer pensions are very hard to find.
So what’s the difference between a 401K and a pension? Well, the main differences are:
- Pensions are funded by the employer, whereas 401ks are funded by the employee.
- Pensions guarantee a monthly income, whereas a 401k does not.
You might say, wait a minute, I’m certain to get a monthly income from my 401k when I retire. Well, you would have to remember, any investment in the stock market is not guaranteed. Although historically the market does go up over time, there were millions of Americans who have lost their money for retirement at the time they were set to retire when the market crashed. A pension would never be affected with how badly the stock market crashes.
If like most workers across the United States, your company does not offer a pension, what are you to do? Well, you could hope that the market does not crash on the year that you are about to retire, or you can be smart and rollover your 401k to an annuity.
An annuity works just like a pension. And like a pension, you are guaranteed a monthly income. Whatever the amount of the income would be, depends on the kind of annuity plan you choose.
If you would like to know more about your options in making sure that you are guaranteed an income when you retire, please don’t hesitate to contact us at firstname.lastname@example.org or call us at (312)469-0016.