Created: February 5, 2021
Modified: May 17, 2023

Episode 34: What is the Difference Between a Pension and a 401(k)?

Today’s question is, “What is the difference between a pension and a 401(k)?” This is a great question because pensions are starting to go away. Pensions aren’t as popular as they used to be. When my grandfather retired, he got a pension and Social Security. He didn’t have to save any additional money for retirement. Both he and my grandma got Social Security. In addition to this, he got a pension from the food company that we worked at for 40 years. Those things are going away right now. People are much more responsible for saving for their own retirement through a 401(k). So, what’s the difference between a pension and a 401(k)?


A pension plan is typically contributed 100% by your company. Let’s say someone works for the State of Massachusetts. They have a pension and the State of Massachusetts is contributing to their pension. None of it is coming out of my paycheck. When someone retires with a pension, their employer has a promise to pay that person. Let’s say it’s $4,000 per month for the rest of someone’s life. The cost is borne by the employer. That’s typically a pension.

A pension is called a defined benefit plan. That means that the benefit that you’re going to get in the future is defined. It promises to pay a certain amount per month at retirement for the rest of someone’s life.


A 401(k) is a defined contribution plan, which means you have to contribute to it. The company might do a match, but you have to contribute your own money from your paycheck. You don’t know what that’s going to pay out for the rest of your life because you’re responsible for putting the money into that plan. Yes, your company might match you, but there’s also rate of return based on investments and you don’t know what that will be.


In some cases, you’re much better off with a 401(k) because you can save more money. Also, there are some tax advantages that you get. In many cases, just from a pure financial security and predictability standpoint, pension plans give a lot of peace of mind.

Now you know the difference between a pension plan and a 401(k). With a pension plan, you know exactly what the payouts are going to be at retirement. The company contributes most or all of the money. For a 401(k) you have to contribute your own money. You don’t know what the payout is going to be.

Thanks for joining me and I hope you found this information helpful!

  • Sandy and Thomas C.
    Sandy & Thomas C. are clients of Johnson Brunetti and received no compensation for their statement.

    “We always felt our financial needs were in very capable hands. Alex Angst is great to work with. Our advisor always made us feel he had our best interests at heart and explained things so we could understand them.”

  • Lisa D.
    Lisa D. is a client of Johnson Brunetti and received no compensation for her statement.

    “Working with Johnson Brunetti has had a positive impact on my life by providing me with the knowledge, confidence, and peace of mind to move forward with my retirement plans. The process of getting to this point, through their guidance, has been informative and pleasurable.”

  • Ken D.
    Ken D. is a client of Johnson Brunetti and received no compensation for his statement.

    “I view your company as one that puts my interests first. I think that is very uncommon and very refreshing. “

  • Jeanne P.
    Jeanne P. is a client of Johnson Brunetti and received no compensation for her statement.

    “Matt does an awesome job! So easy to understand and he listens to our concerns and addresses them! happy I chose your firm!”

  • Anonymous
    This testimonial was provided by a client of Johnson Brunetti and received no compensation for their statement.

    “I have been pleased with the help and service I have received from the company. I have met several team members on Eric’s team and have found all of them very well prepared to meet with me when reviewing my portfolio. I always feel that I am an important customer and appreciate that very much. I hope the firm continues to focus on the customer and maintains its great service. I think you do a great job for someone like me!!!! I’m happy I chose your firm!”

Our Locations
Johnson Brunetti
Welcome to Our New Website!
Everything was designed with you in mind, making our retirement planning resources more easily accessible to you.
Check out your new resource center, where everything can be organized by article type or topic
Are you ready to speak with a financial advisor?
Johnson Brunetti

Investment Advisory Services offered through JB Capital, LLC.
Insurance Products offered through JN Financial, LLC.
Atlanta • Boston • Hartford | Tel: 800-208-7233

JB Capital LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. Information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.

JB Capital's Form ADV | Disclaimer | Privacy Notice | Client Relationship Summary

*Information about our Affiliation with the UConn Huskies

Johnson Brunetti is a sponsor of WFSB Better Money, WCVB Better Money Boston, WSB-TV Better Money Atlanta, WTNH Money Wisdom, and WTIC Money Wisdom.