Should I Invest in an IRA or a 403(b) If I Already Have a Pension?

Speaker A00:00:37

Have you ever felt unsure even when you're already doing something right? You've got a pension, you've been consistent and yet you're wondering, is there something more I should be doing?If you've been trying to make the next wise step without overcomplicating things, today we're going to help you simplify that decision. Hello, friend, Ralph Estep Jr. Here.Welcome to Financially Confident Christian, where every day my goal is to help you break that cycle of financial shame and live in confidence. And I got a listener question today. It's a very specific question, but it is a great one.Should I invest in an IRA or a 403B if I already have a pension? Well, let's get right into that question. Question is this. Hello Ralph. I'm in my mid-30s and I work for a state agency that offers a pension.I'm vested and they take about 10% of my pay. I don't contribute to Social Security. If I stay, I can retire before age 60 and receive about 75 to 80% of my final salary.That said, I want to be more comfortable in retirement. My work offers a 403B with no match. But I'm wondering if I should use that or open my own ira. What are the pros and cons of each?Great question, but first I want to recognize something important. You have already built a strong foundation. A lot of people don't even have the benefit that you have.Those ideas of pensions are sort of going by the wayside. But you're working for a state agency that has it. So you've already built a strong foundation. Think about it like this.You already know you've got something that if you stay there, the rest of your working days will give you 75 per 80% of your income. That's huge. That's significant. So in so many ways this isn't about catching up. And I looked at your age, I'm like 30. This is fantastic.But what you're really trying to do is build on what's already working. So here's my big idea for today. When you've already got a pension, additional investing is about flexibility, not just accumulation.That's what we're really talking about here is how can I build some margin? How can I build some flexibility? But how do we make this decision?First thing you've got to do is you've got to understand what your pension already provides. Your pension is doing something powerful. It's amazing, actually.It's going to give you predictable income, long term stability and reduced Reliance on market performance. That's the beauty of your pension. No matter what the market does, you've got 75 to 80% of your income set aside. You don't worry about the market.What that means for you in a practical way is your basics in retirement are already covered and that changes how you invest things. So start off by understanding what you have. This is a, trust me, this is a great place to start.But the second thing you've got to start thinking about is you've got to clarify what your additional investing is for. You mentioned to me, Ralph, I want to do something else. First of all, you're not investing to survive retirement.You've already got that survival number. Yeah, you meant to trim your income, trim your expenses a little bit, live a little bit more frugally. But this isn't about survival.What you're really trying to do is increase your flexibility. And listen, none of the things I'm talking about are bad things. These are all positive things. You want to have more flexibility.You want to be able to handle those unexpected costs. You haven't said this, but my suspicion is you want to enjoy life more fully and you want to reduce financial stress later in your 30s.This is beautiful. You're already looking ahead and you're going, you know what, Ralph, when I retire, I don't want to feel like I've got to.And maybe you come from a place where maybe your grandparents or maybe even your parents are struggling and you see how people, as they get older on that we call that fixed income, are struggling. So first of all, this isn't about margin for you. This is not just more money. This is flexibility.But let's get into the nuances of what you're talking about. We need to take a minute and understand the difference between a 403 and an IRA.So you've already said you're covered by a pension that is 100% funded by the company. They're taking the money from you. Let me simplify it. A 403 is a lot like a 401. It's a payroll deduction.It gives you higher income, higher contribution limits. It's convenient and automatic. You basically say to your HR person, I, I want to put X dollars into 403. It's a fantastic thing.But remember, there might be limited investment choices because this is again, being operated by the company or the state where you work. But it's super simple. You just say to hr, take this much out and you just watch it grow.Now, an IRA, on the other Hand, it gives you more control over your investments. You can decide, hey, this is what I want to invest in. A lot of times there's lower fees and there's flexible provider options for that.Either one of these is not going to be an employer match thing. So it's not about, well, am I leaving money on the table, Ralph, if I don't do this? That's not this situation.The decision here becomes about convenience or control. So think about access and flexibility. And this matters more than people realize. An IRA often gives you broader investment choices.Like I said, I've got clients that have self directed IRAs. They invest in gold and silver apartment buildings, Smith businesses. You can't do that with a 403B.The other benefit to the IRA, it's easier to access, it's easier to manage. And honestly, it gives you more flexibility over time, but you might not be able to put as much into it. Whereas the 403B, it's super simple.You don't even notice it. It just handled by HR and it builds that consistently, automatically. That consistency is built automatically.That's why I love 403bs or 401ks, because you kind of set it and forget it. But neither of these options is wrong. It really depends on how you manage money best. But you got to keep things simple and sustainable.Here's what I want you to do because I think you can overthink this. And so many people overthink financial decisions to the point of inaction. I call it analysis or paralysis through analysis.I've got so many clients, they've got this spreadsheet and this spreadsheet and what do I do and what. Both options here, if done consistently, will move you forward. They just will. You could start with an IRA for flexibility and use the 403.Now you can't do both. That's the thing you've got to understand. You got to make a decision here.If you're covered by the 403 plan, a real practical thing, your employer's going to mark a box on the W2, which means you're not eligible to take a tax deductible ira. So you got to make a decision.But the key isn't choosing perfection here, it's choosing what works for you and it's choosing what you're going to stay consistent with what works for you. Might not work for somebody else.But I want to take this a little deeper because even these good decisions, and listen, you've got two decisions which are both great decisions, even making good decisions can feel heavy. I sense that from your tone of your message. You want to do this right. You want to make the best financial choice. You want to make wise choices.But here's the thing I want you to hear. God's not measuring you by perfection optimization. I think a lot of people get stuck on this.Well, I better do it right because God said he's going to provide for me, but I got to make sure it's right. God honors faithfulness. So just remember that even in decisions like this, be faithful.So just look to God right now and say, lord, maybe guide my steps in this. Help me move forward with wisdom and peace. Because that's the two things you're really looking for. You want wisdom and.And you want peace because you're not behind in what you're doing. You are so far ahead of so many people, but you're building wisely on what you already have. And listen, I encourage you. This is a great thing to do.So here's your win for today. I want you to choose your starting point in your life. Make that decision. I'm opening and I'm funding a blank to begin additional flexibility.You can do the 4.3B, you can do the Iraq, you can do neither. And do some after tax investment. There's some tax nuances to this.I love the 403B because it's going to reduce your taxable income, which is going to save you money and it grows tax free. But just decide what you're going to do. Take that action. There is no wrong decision here.Create that movement because when you start to move forward, you create momentum in your life. Let's get to the Bible today. Let's go to the book of Proverbs, chapter 21, verse 5.I've used this on this show so many times I can't even count it on my fingers and toes. But it's super important. Again, Proverbs 21:5. The plans of the diligent lead to profit as surely as haste leads to poverty. Why does this fit today?It fits because that steady, thoughtful investing done consistently leads to long term growth. And that's really what we're talking about here today. All the things you're talking about doing are leading to long term growth.You're making wise decisions and I applaud you for that. How about we pray together? Heavenly Father, I lift up my friend right now who's trying to make wise financial decisions.And Lord, you see their diligence, you see their desire to prepare well, even in their 30s, which is beautiful. Lord, I just ask that you would give them clarity in how to move forward the right way right now.Remove that confusion and that overthinking that's burdening them and replace it with steady confidence in you, Lord. Help them to take action, to stay consistent and to trust you with the outcome.Remind them, Lord, they're already on a strong path and Lord, you're guiding them forward in each of those decisions. And I ask this in Jesus name. Amen, friend. You don't have to optimize everything. You just need to start doing something now.Maybe right now you're watching this or you're listening to this and you're trying to figure out your next step with whatever you're dealing with and you're trying not to over complicate things. I would love to help you on that journey. You can submit your question to me at financiallyconfidentchristian.com/question Maybe it's not a question.Maybe it's a triumph. Maybe you've listened to the show and you're like, ralph, man, I. I love what you said and here's what I did. I put this into practice.Tell me about where you're winning. Tell me about your struggles. It doesn't just have to be a question. I just love to hear from you.Feedback just feeds me and makes me want to come here and give you more great content. So again, share with me what you've got going on. Go to financiallyconfidentchristian.com/question I want to thank you for joining me today.I want to encourage you, be encouraged, stay financially savvy. May God bless you and you have a great day today.