Personal Finance

Dave Ramsey thinks a 401(k) is better than a pension for these 5 simple reasons

Marc Guberti

Published: January 25, 2025 7:44 am

Dave Ramsey has shared financial advice for many years, and a tidbit that he shared a few years ago continues to age well. In an old YouTube video, Ramsey states that 401(k) plans are better than pensions. He asserts that 401(k) plans have created more millionaires than pensions and that they are more effective wealth generators.

Ramsey notes that governments and unions are the only ones that still offer pensions, but that may not be in the best interest of workers. The financial guru outlines a few key reasons why 401(k) plans are the better retirement vehicle.

Company Matches

Many employers offer 401(k) matches that allow you to boost your retirement portfolio without any additional effort. These matches are the type of free money that you won’t get with a pension. Even better, the contributions enjoy specialtax treatments. Traditional 401(k) plans are tax-deferred, while you won’t pay capital gains on any withdrawals from a Roth 401(k).

You Are in Control of Your Money

When you invest in a 401(k), you get to decide which funds and individual stocks to buy. This arrangement gives you more control than pensions, where you have to trust that the pension manager does a good job of managing your money.If someone else is in control of your money, they will not take it as seriously as you.

You can also adjust your 401(k) plan as your risk tolerance changes. While fixed-income assets may make sense when you are in your 60s, they don’t make as much sense for people who are in their 20s. Pension managers aren’t accounting for individual people’s goals and will likely have a portfolio that doesn’t align with your risk tolerance.

The 401(k) Is Portable

If you get fired or decide to leave your job, the pension doesn’t always come with you. Some companies only give you a pension if you have worked for the company long enough. Furthermore, you can get locked out of a higher pension if you leave the company too early.

Meanwhile, you can take a 401(k) plan from one company and move it to your new company’s 401(k) plan. You can also move the funds to a traditional or Roth IRA while waiting to land your next job.

You Are in Charge of Your Life

The 401(k) plan gives you more control and ownership of your finances. Dave Ramsey emphasizes that you have to stay in control of your finances. He also says that you are in charge of your success. A pension makes you dependent on someone else to manage the money correctly, and it’s similar to golden handcuffs. 401(k) plans offer more flexibility. 

You Can Access Your 401(k) Plan Right Now

You can’t access your pension right away, but 401(k) funds are accessible immediately, including the employer’s match. One downside with early withdrawals is that they come with a 10% penalty, but it’s nice to know that you have this option.

In some cases, you can withdraw funds from your 401(k) early without incurring any penalties. Medical expenses, higher education expenses, adoption expenses, and buying a house (limits apply) are some of the costs that do not incur the 10% early withdrawal penalty fee.