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The Thing About OT...
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<blockquote data-quote="ThePackageDeli" data-source="post: 5210572" data-attributes="member: 77514"><p>Let's compare the two scenarios. In each scenario, a person is working for 30 years.</p><p></p><p><u>Pension: </u>You have to work AND wait 30 years to begin receiving your benefit. Let's say you retire at 60 and live to be 85(25 years in retirement). Let's also say your pension is $50k per year... $50k/yr * 25 years = <strong>$1,250,000</strong>, nice! And you may factor annual increases into that total as well.</p><p></p><p><u>401k with match: </u>You also have to work AND wait 30 years to begin drawing on your investment without penalty. The big difference between the two right off the bat however is that when you reach age 60 here, you have full access to ALL of your investment IMMEDIATELY. That's a HUGE deal. So, let's assume that with the company match you are able to max out your 401 contribution every year for 30 years. Current contribution maximum is $20,500 per year. And the historic returns on a simple S&P 500 Index fund over the last 80 years is around 10-12% (not 5% like you suggested). So let's be conservative and assume an 8% return for 30 years... $20,500/yr * 30 years factoring in 8% return annually (on average) = <strong>$2,500,000</strong>, very nice! And you can access all of that money at age 60. </p><p></p><p>Both scenarios have risk and make big assumptions that can greatly effect their efficacy. The pension route assumes you will live to be 85, and not die 5 years after retiring. And the 401k route assumes the stock market will continue to perform in the future as it has in the past. But all things equal, I'm favoring the 401k route in this scenario.</p></blockquote><p></p>
[QUOTE="ThePackageDeli, post: 5210572, member: 77514"] Let's compare the two scenarios. In each scenario, a person is working for 30 years. [U]Pension: [/U]You have to work AND wait 30 years to begin receiving your benefit. Let's say you retire at 60 and live to be 85(25 years in retirement). Let's also say your pension is $50k per year... $50k/yr * 25 years = [B]$1,250,000[/B], nice! And you may factor annual increases into that total as well. [U]401k with match: [/U]You also have to work AND wait 30 years to begin drawing on your investment without penalty. The big difference between the two right off the bat however is that when you reach age 60 here, you have full access to ALL of your investment IMMEDIATELY. That's a HUGE deal. So, let's assume that with the company match you are able to max out your 401 contribution every year for 30 years. Current contribution maximum is $20,500 per year. And the historic returns on a simple S&P 500 Index fund over the last 80 years is around 10-12% (not 5% like you suggested). So let's be conservative and assume an 8% return for 30 years... $20,500/yr * 30 years factoring in 8% return annually (on average) = [B]$2,500,000[/B], very nice! And you can access all of that money at age 60. Both scenarios have risk and make big assumptions that can greatly effect their efficacy. The pension route assumes you will live to be 85, and not die 5 years after retiring. And the 401k route assumes the stock market will continue to perform in the future as it has in the past. But all things equal, I'm favoring the 401k route in this scenario. [/QUOTE]
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