Dave Ramsey says: Young couple should put money into IRA, not pension

A young couple trying to get on track for good finances is considering more contributions to the wife's pension. Dave Ramsey says there are better options.

BY DAVE RAMSEY

Apr 4, 2017, 11:30 AM

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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 6 percent rate of return in the current environment — maybe even as low as 5 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