Dear Dave,

My wife and I are both 25 years old, and we’re working on Baby Steps 4, 5 and 6. I have a 401(k) through my employer, and she has a pension. Currently, we’re falling short of the 15 percent of income you advise putting toward retirement. Should we get IRAs, or start stocking money away in her pension?

John

Dear John,

I wouldn’t put money into a pension. For one thing, when you die after putting money into a pension, in most cases it dies with you. Number two, when you put money into a pension, you’re going to get about a six percent rate of return in the current environment — maybe even as low as five percent. You’re not making much on it while you’re alive, so I don’t advise putting money in pensions. We let employers put money in pensions, if they want to. That’s a nice benefit, but I wouldn’t add to it.

I would do a couple of Roth IRAs, and max those out. Then, max out whatever you’ve got at work that you own. Of course, when you’re vested in a pension, you own it. That much is true. But still, I don’t advise adding to pensions, buying years up, or any of those kinds of things.

There are a few examples out there where that kind of thing works mathematically to your benefit, but they’re very hard to find. Out of all the years I’ve been in this business, I can count on two hands the number of times I’ve seen it work out.

So no, I wouldn’t do more with a pension where you add to it yourself, especially at such a young age.

—Dave