By Professor Pennywise

"No, Dad," you keep saying in your calls home, "not the Maximus from Gladiator. My guy is for real."

You spent the past 12 years learning Latin, dabbling in Welsh, and studying Old Spanish and French, enabling you to write a dissertation on Magnus Maximus, the Roman general who seized control of Britain and Gaul, ruling for five years before Rome executed him in the year 388.

Mirabile dictu, in the end you land a tenure-track position at Big State U. Then you sign a contract with Oxbridge Press. Praise Jupiter. In the mornings you rework the dissertation into the world's first-ever biography of Magnus Maximus, and in the afternoons you pack boxes for your move. You conclude that all those verb conjugations were worth it.

Then comes trouble. A bewildering packet arrives in the mail, full of charts and tables, topped by a letter from Big State U. stating that you must—by October 1—pick your retirement plan. The letter calls the decision "irrevocable," putting that word in boldface and underlining it. The next line adds that the decision "cannot be rescinded or changed at any time." Infinitas infinitio? Ecce.

Every autumn, the same thing happens to a new batch of innocents—secretaries, librarians, assistant professors. Presiding over it is a group of diabolical sadists known as "human resources" officers. They stuff all campus newcomers into a centrifugal chamber and spin them around and around until they pop out, dizzy and confused. This is called "new faculty and staff orientation."

The new faculty members have obtained the highest degrees in their fields. The new staff members have sterling performance records. None of that matters. They must now, pell-mell, make an irrevocable decision with great consequences for their futures on a subject in which most of them have zero competence. Zero. Many just give up, close their eyes, and, like monkeys, throw darts at a board, hoping to hit the right retirement plan.

There is a better way: Know your options. What follows is Pennywise's simple guide to the two main types of retirement plans, namely public pension plans and self-managed retirement plans. If you've been hired by a public institution, a choice between them is almost surely required at the beginning of your employment.

The first thing to know is that any plan beats having no plan at all. Do not opt out of the campus retirement plan, whatever you do. Do not let the prospect of a choice paralyze you. Select a plan.

Ah, but which one?

Option 1, the public pension plan, is known in the hopelessly arcane and needlessly complex lingo of the financial world—probably parroted in your packet from HR—as "defined-benefit." The carrier will bear a name like State Public Employees Retirement System. Under that kind of plan, a contribution is deducted routinely from your paycheck, something like 6 percent or so of your gross pay. The system invests and administers those contributions for all public employees statewide. When you reach retirement age, you will receive a monthly pension, its amount calculated by a formula comprising your number of years of service and salary level in your final few years of employment. Usually, decades-long employees are paid something like 70 to 80 percent of their final salaries. Details vary, though, so check your plan for specifics. (Be alert if your state's plan is one of the newfangled ones that link payouts to stock-market fluctuations—in which case your pension won't be guaranteed based on years and salary alone.)

Option 2, the self-directed plan, is known as "defined-contribution." In the university world, that entails a 403(b) account, equivalent to a 401(k). That means that a private provider handles the account, whether TIAA-CREF—ubiquitous in academe—or the Vanguard Group, or some other outfit. (Your institution may let you have a choice among such defined-contribution providers. Typically, though, you will have just one option.) In this model, too, you contribute about 6 percent of your pay. Your employer matches the amount. The combined contributions, yours and your employer's, are placed in an account that you control. Once you reach retirement age, you draw down distributions from the account until it is exhausted.

Which option is better? The answer depends on you and your predilections.

Option 1 is definitely better for you if you know the difference between phenomenology and pragmatism, but not stocks and bonds, or are an expert in central-African music and do not know, or care to know, the meaning of expense ratios. Option 1 is automatic. It requires no special financial knowledge or activity on your part. It provides security by delivering a regular payout for the whole of your senior years, transferable to your spouse (and, in some cases, civil-union partner) upon your death. It is guaranteed because, even if the pension system's investments go bad, promised payouts are backed by the federal government's Pension Benefit Guaranty Corporation, analogous to the FDIC.

Option 2 has these advantages: It offers control, since you and you alone will decide how to allocate its assets. If you are financially savvy, it allows you to invest according to your preferred level of risk. It affords flexibility, since you can often borrow against it or make withdrawals for permissible purposes such as house buying, tuition expenses, or health bills. The account balances can be willed upon death to heirs or good causes. I spell out some additional tax and accrual features of such accounts in an earlier column on why employees should take their employer's retirement match (The Chronicle, January 16, 2009).

A further factor to consider is portability. With Option 2, the account is yours. You take it with you when you change jobs. Option 1 is similar in that it will result in a pension when you reach retirement age, even if you have long since left the state's employ and are now lying on the beaches of Jamaica, umbrella drink in hand. However, payments for those who depart a public pension system early are proportionally minimal compared with payments to those who serve out a full career, so if you anticipate switching jobs across your career, Option 2 may well be more sensible.

A cautionary note: Option 2 is often beyond the financial competence of many participants. This is especially true if they are cocky. Studies show that participants tend to skew their asset allocations. Either they are overly cautious, parking everything in cash or money-market funds that do not appreciate sufficiently relative to inflation, or they plunk down their whole stake, casino-style, on equities—or, worse yet, a single stock—and find themselves scorched in Wall Street's periodic immolations.

For that reason, many impartial financial observers consider Option 1 ideal for most employees.

A traditional public pension plan prevents self-defeating activity, like early withdrawals, that leave people with paltry account balances when they reach retirement. It safeguards against inadequate contribution levels and errors in asset allocation.

If, however, you understand the principle of investment diversification and will never tap your retirement savings prematurely, Option 2 is hard to beat for portability and potential to accumulate wealth. Just be sure to examine the plan's fee structure. Make sure the costs are relatively modest. (TIAA-CREF and Vanguard both meet that test, but other carriers can be absurdly high-priced.)

After weighing all of those points, if you still can't make up your mind, consider a hybrid option: Choose Option 1, the public pension, but also open a Supplemental Retirement Account, directing some voluntary extra payments every month into an additional account that you control. That means you will rely on Option 1 primarily while also experiencing the advantages of Option 2. Doing so will take a bit more of your disposable income, but should result in a cornucopia at senescence.

There are, as you can see, many roads to Rome. Carpe diem.

Professor Pennywise is a professor in the humanities who has taught from the Pac-10 to the Big Ten. He is merely a frugal academic, not a financial professional. Questions, comments, and suggestions may be sent to professorpennywise@yahoo.com.