401(k) and Pension Plans

401(k) plans and traditional pension plans are two parts of the traditional retirement plan which includes the employer-provided pension and personal retirement savings/401k.

There are differences in each plan.

Pensions guarantee a given amount of monthly income once retirement begins. The investment and “longevity risk” lie solely on the plan provider.

A 401(k) plan is a defined contribution plan and places the investment and longevity risk of the plan on individual employees by asking them to choose their own retirement investments. In this type of plan, there is no guaranteed minimum or maximum benefit.

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