Today’s Smart Money Question:
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Here Are Just A Handful Of Things You’ll Learn:
On today’s episode we’re talking about 401ks versus pensions – what is the better option if you have a choice?
Deb in New Jersey is in the middle of a divorce after 30 years of marriage. Should she get half of his 401k or half of his pension? She likes the idea of guaranteed income, but she won’t be retiring for 10 years, so she doesn’t need a pension right now.
There are a couple things to consider. First, how much is the 401k balance versus what is the pension monthly payment going to be? You want to see how many years in advance are they looking to give you.
If you took half the 401k and it’s the equivalent of 15 years of pension payments, you’re creating an asset right now that’s kind of like time-value of money. I would get all the money now instead of waiting 15 years for monthly payments.
If you’re 10 years from retirement, when would the pension actually start? If it won’t start for 10 years and half the 401k balance right now is 15 years in advance of pension, now you’re talking about 25 years you would have to wait to get all of the pension payments that would be equal to the 401k balance today.
Those are some key questions you would want to get answers to. A positive thing about a 401k is you can control the investment and how it’s distributed to you. Once the pension starts, it’s coming and it’s taxable. If you got the pension and died prematurely, that pension payment would stop, but a 401k would go to your heirs.
Also on today’s episode, we’re talking about the importance of keeping your beneficiaries up to date and the latest on the SECURE Act. Listen to the full episode or use the timestamps below to jump to a specific section.
2:08 – Beneficiaries
8:07 – SECURE Act
12:10 – 401ks and pensions
15:30 – Premature death and pensions
“When a divorce is final, what’s going to be your overall financial picture?”
-Matt Hausman
Additional Podcast Episodes:
- How to Handle an Unplanned Retirement
- Our Average Clients & What Documents You Must Have
- Tough Questions About Family Finances
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The host: Matt Hausman – Contact – Resources – Call: 610-719-3003
