Screw Pensions, Here's Why You'll Be Just Fine Without It

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Do you ever get tired of your dad telling you how it was better back in the day? Nobody locked their door, kids wore their ball caps with the bill in front, and if you worked hard and stuck with your employer, you got a retirement party, gold watch and a pension.

He’s got a point about that last one.

For much of modern history, many retirees counted on an employee pension to fund their golden years. This life-long monthly reward for years of devoted service was so central to retirement that the British refer to post-career people as “pensioners” and here in the U.S. employs who were eased out of a job a bit early were said to be “pensioned off.”

No more. Private sector pensions have been going out of style since the 1980’s as companies seek ever-greater cost efficiencies. Just one-third of American retirees currently receive a pension, and that figure includes those who worked in the public sector, where pensions are still fairly common. The median private sector pension benefit in 2014 was $9,200 per year. Those vanished pensions have been replaced, in most cases, by an employer-sponsored 401k tax-deferred savings plan, often with the company matching a percentage of employee contributions.

Sucks, right? Well, kinda. Your dad was spot-on about the awesomeness of pensions. They do provide a great sense of stability and security in retirement. Some retirees live an enjoyable retirement on pretty much just their pension and Social Security benefits.

Related: How Much Should I Save If I Want To Spend $100,000 Every Year In Retirement

But don’t get all sad. There are some real advantages to having a 401k instead of a pension.

Job flexibility. You typically need at least 10 years service with an employer to earn pension benefits. This requirement can really limit your career options. Imagine that after nine years with Oscorp, which has a great pension plan, you are offered a dream job at Stark Industries. If you take the new job, your time at Oscorp will net you nothing in retirement. But if you have a 401k at Oscorp, you own the contents of that account and can roll them over to Stark’s even-better 401k plan with no hassle or consequence.

Tax benefits. Those like-clockwork pension payments are fully taxable as soon as they hit your account, so you incur a tax liability every month, whether or not you needed the money at that point. With a 401k, your money is taxed only when it’s withdrawn from the account. If you don’t need to tap the 401K this month, you have no tax obligation.

What’s more, your annual contribution to a 401K is deducted from that year’s taxable income, reducing the government’s bite of your money apple.

Emergency access. You can borrow from your 401k savings if necessary. While never a great idea, this option isn’t available from a pension.

Leftovers for family. Any money left in your 401k at the end of your life goes to your heirs. Pension payments end at your death, or, in some cases, the death of your spouse.

Don’t spend a minute pining for the good old days of pensions. You can generate the same level of retirement income, and have more control over your money by building your own retirement strategy consisting of various income streams, including Social Security, the proceeds from your full-funded 401k, additional savings, and such ancillary money as income from rental property and even a part-time retirement job.

Related: Why Investing In Your 401k Is A No-Brainer

Like all DIY projects, forging your own retirement future takes time and effort, but pays off in the satisfaction of creating something that exactly meets your needs on your terms.