401K or the voluntary pension fund. ?

Question

I currently work for GE and I am 42 years old. I would like to know if I would be better off putting my money into the company matched 401K or the voluntary pension fund. Right now I have 24% going into 5 different investments in the 401K.

Thanks Roy

Answer 1

This isn't the best answer since I don't know the specifics of the Voluntary Pension Fund, but here's the standard advice:

1) Contribute to your 401(k) at least enough to maximize the company match, since that's free money.

2) Consider that you're about halfway to retirement; that means that you want to stay diversified, but you want to be slightly more conservative in investing than when you were younger.  The rule of thumb is that the proportion of fixed-income in your portfolio should be about equal to your age, so 42%.  (Like all rules of thumb, consider it a guideline only.  If you have more aggressive savings goals, or a higher risk tolerance, you may want to adjust that percentage significantly downward.)

3) Assuming the Voluntary Pension Fund acts like most pensions -- it guarantees you a certain level of payout for a certain level of investment -- then consider the pension as a fixed-income investment.  Compare it with other fixed-income investment options available to you in your 401(k).  I would guess that the fees charged by the pension fund are lower than any 401(k) option, so if the return is comparable (or even a bit lower,) I would consider moving some of your new contributions to the Voluntary Pension Fund.  Like any single investment, I wouldn't make it more than 15% of your portfolio.

4) All of the above is irrelevant if you have to make an all-or-nothing switch from 401(k) to pension, which I would NOT recommend at your age; another factor to consider is what happens if you get laid off or leave your job -- if your pension funds are less easy to access than your 401(k), then that's a strike against moving ANY funds into the pension.

Sorry I can't be more specific -- hope this helps!

Answer 2

If the contributions are NOT mutually exclusive, you should contribute to both.  I would max out 401(k), looks like you are, and then pension.  Of course, that depends on if the pension plan has any matching from the company.  If it has, and it's better than 401(k), I would certainly take advantage of that first./