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Comment by code_runner | Hacker News Reader

we have a concept called a 401k (and for non-profits a 403b). You contribute some % of your paycheck and your employer matches some amount of that (potentially with a vesting schedule)

The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

I am not old enough to ever have had a pension option in my entire life, but I believe 401Ks are overall worse, because pensions come w/ some amount of guaranteed payout + someone managing the fund to ensure that happens. a 401K can go to zero, and you can forget to contribute (and most of the money is your own money anyways)

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> The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

Not quite - you're given a tax benefit (i.e., not taxed) on your contributions when you contribute them, but when you withdraw funds you pay income tax. If you withdraw before the 'retirement age' (55.5, as you say) then you pay an additional penalty.

The idea being that you would be in a higher tax bracket during your earning years, but in retirement you'd be theoretically in a lower tax bracket, therefore would get some tax savings. Additionally, since the tax savings is taken off of the 'top' of the bracket when you contribute and when you withdraw its added to the 'bottom'.

There's also Roth contributions (where you get no benefit now, but don't pay taxes on gains later when you withdraw), but not all plans offer this.

Pensions are not under your control. mostly they were good but once in a while the company you worked for, for 30 years went bankrupt and then you found out the penson was in company stock so not only were you out your job/income you also lost your retirement. In response to that we now have laws about what pensons can invest in - but that means their returns are terrible and so they are not a good roi.

more people have access to a 401k today than ever had a pension as well.

> You contribute some % of your paycheck and your employer matches some amount of that (potentially with a vesting schedule)

This is actually completely optional, many employers do not. For example mine does not do any matching or contributions

> The money can be invested, and then at some age (55.5 i believe?) you can access the money without being taxed. There is a maximum you can contribute per year etc etc.

So the tax side of this depends on if the 401k was done as Roth or traditional. Traditional IRAs are tax advantaged but not tax free. Contributions are pre-tax from the employee's paycheck. Roth on the other hand is post tax and tax free on withdrawal (assuming no penalties).

The pensions I had in mind (UK) don't have any guaranteed payout and can go to zero. We don't have to have anyone "managing" them, and I for one think that's a good thing.

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