Over recent years, schemes such as the 401k plan have become more and more popular as the traditional pension plan has gradually fallen out of favor. However, MSN Money reports that while many people bemoan the loss of the traditional pension, new research suggests the 401k is not to blame.
A study by the Employee Benefit Research Institute, a nonpartisan think tank in Washington, has found that workers with 401k’s in some cases are likelier to end up with more money at retirement than they would with a traditional private-sector pension plan. So, is a 401k better than a traditional pension? Keep reading to find out.
The study found a hefty 44 percentage-point gain in favor of 401k’s for the average worker at the highest income level.
In the above scenarios, the EBRI study assumed historical rates of return on an equities and bond portfolio, and historical annuity costs. The research also assumes that retirees purchase an annuity at age 65 in order to compare 401k’s to traditional pension payouts.