When it comes to company-sponsored retirement plans, 401(k)s are likely the most common offering. While pensions were once fairly widely used, that isn’t the case any longer. For some professionals, this is incredibly frustrating. Pensions – also called defined benefit plans – come with a level of stability and predictability that you don’t always find with a 401(k). Investment returns can be volatile, and some earnings may be eaten away by fees and other costs. However, that doesn’t mean the results in a pension vs 401k calculator can’t come out in favor of the latter. If you want to know how to pull that off, here are seven tips that can help.

1. Contribute Early and Consistently

With 401(k)s, compound interest is your friend. By contributing at a younger age and continuing to do so for as long as you are eligible, you’re allowing the magic of compound interest to work for you.

Additionally, by making regular contributions, you can offset some of the impacts of volatility. While some of your money will be invested when the market is strong, you also get to invest when prices in the market are low. In the end, this often balances your investing out over time, which does work in your favor.

2. Contribute the Maximum Amount Every Year

Each year, the IRS sets a maximum contribution limit for 401(k)s. Ideally, you want to contribute up to that amount, ensuring you can stash away as much money as possible.

For 2021, the employee 401(k) contribution limit is $19,500. For individuals who are 50 years old or older, they can also add in catch-up contributions up to an additional $6,500.

It’s important to note that employer contributions aren’t counted toward that limit. Only what you save is used to determine if you’ve hit the limit, so employer contributions can send you above and beyond those amounts.

Ultimately, contributing the maximum amount gives you the best chance of coming out ahead in the pension vs. 401(k) debate.

3. Capture Your Full Employer Match

In many ways, employer matches are like free money. They add to your savings without impacting your income, but only if you’re actively contributing enough to qualify for the match.

If you’re contributing the maximum amount each year, you save more than enough to get the full match. However, if you can’t set aside the maximum amount, work to dedicate enough of your funds to receive your full employer match. That way, you get as much free money as possible, increasing your odds of having enough in savings to have your 401(k) perform at least as strongly as a pension.

4. Aim for 15 to 20 Percent

Another option for winning the pension vs. 401(k) game is to make sure you are stashing away at least 15 to 20 percent of your income. Now, this can include your employer match. So, if your employer will match up 3 percent, that means you need to dedicate 12 to 18 percent to hit that mark.

Precisely how much you need to set aside may vary on either your current income level or your target retirement annual income amount. Some professionals may be able to get by saving less if they tend toward frugality, plan to retire in a low-cost area, or have outside investments or retirement income sources that will bolster their financial security during their golden years.

However, it typically doesn’t hurt to over-save a bit. Worst case, your retirement will be more comfortable than you initially hoped, and that isn’t necessarily a bad thing.

5. Diversify Your Portfolio

While diversifying your portfolio won’t automatically lead to gains, it can help protect the value of your 401(k). Typically, when markets shift, some sectors are affected more than others.

By diversifying, you create a level of stability by ensuring you don’t keep all of your eggs in one basket. Usually, when some of your investments are trending downwards, others aren’t. You end up better equipped to ride out normal market fluctuations, ensuring your portfolio as a whole is heading in the right direction no matter what a portion of your individual investments is doing.

6. Reconsider Your Risk Level

The risk level represented in your 401(k) plays a role in how much your savings may grow over time. Higher-risk investments typically have the potential to yield greater growth. However, there’s also a chance for more significant losses.

If your portfolio is diverse, you can often afford to take on additional risk. This is especially true for younger professionals who have enough time to ride out a degree of volatility.

While you don’t want to take on so much risk as to keep yourself up at night worrying about your 401(k), consider being as aggressive as you can while still feeling comfortable about your choice. That way, you’re giving your portfolio a chance to grow.

7. Reevaluate Your Portfolio Annually

Investment decisions you make when you first start with a 401(k) may not be ideal down the road. Economic conditions change, sectors shifts, and the value of various investments will move around.

If you want to make the most of your 401(k), review your portfolio annually. See if your allocations still make sense or if making an adjustment is a smart move. Not only can this allow you to alter your strategy based on economic shifts, but it also gives you a chance to reassess your risk level and portfolio composition. You can make changes to make sure you are diversified and that your risk level feels appropriate based on your life stage.

Do you have any other tips that can help someone get the most out of their 401(k) vs. pension? Share your thoughts in the comments below.

Read More:

• Investment Tips: How Much Should I Have in My 401(k)?
• Will My 401(k) Last for the Rest of My Life?
• Five 401(k) Alternatives You Need to Know About

Tamila McDonald

Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.