Face the facts. The era of lifetime employment, capped off with a gold watch and a guaranteed pension, is over. Even profitable companies like IBM (NYSE: IBM ) and Hewlett-Packard (NYSE: HPQ ) have dropped or are stopping their pensions. Instead of promising a guaranteed payout, most companies are now providing a certain level of funding, with employees responsible for figuring out how to make their share of that money last.
If you're like most folks, even if your employer has cut its pension, you still want to retire -- someday. Yet that day may feel like it just keeps getting pushed farther away, especially if you're among those who can no longer count on a full pension. Now more than ever, it's up to you to ensure your retirement is well-funded and satisfying.
Find your free money
To encourage you to start your planning now, I'm going to tell you about a perfectly legal strategy that can instantly double your money. Heck, Uncle Sam and your boss will probably help you do it.
There is a catch, though: You have to start the ball rolling. You have to take the initiative and say to yourself, "Today is the day I fill out my 401(k) paperwork." Yeah, it's that thing again, that ugly conglomeration of numbers, letters, and parentheses. As odd as the name may be, your 401(k) just might be your ticket to instantly doubling your money.
The fine print
Buried in the fine print of your employer's 401(k) plan, there might be a note saying that the company will match your contributions, perhaps at $0.50 for every $1 you contribute. Some companies, like Iomega (NYSE: IOM ) , will even match part of their employees' contributions dollar for dollar, making the impact that much greater. Your company's match is largely free money -- yours to keep once you're vested -- and it goes straight into your account. That matching contribution goes a long way towards making the magic happen. The rest is provided by the U.S. government.
If you've got earned income, chances are pretty good you're getting taxed on it. For the sake of argument, let's assume you're in the 25% federal tax bracket. That means that the last dollars in your paycheck shrink by about 25% before you see them. If you contribute to your employer's traditional 401(k) plan, however, those income taxes are not taken out of the money you invest. Instead, income taxes are deferred until you withdraw the money.
Add up the tax deferral and your employer's generous match, and the results look something like this. You invest $1,000 into your 401(k). Your employer adds $500, for a total of $1,500 invested. Thanks to Uncle Sam declining to immediately tax your money, your take-home pay will have dropped only about $750 for that $1,000 contribution. Net result: Your 401(k) balance is instantly $1,500, and it cost you only $750 of spendable money. Congratulations -- you've instantly doubled your money.
Truth be told, getting the money into your account and watching it instantly double is the easy part. After all, to get that far, you merely need to fill out a little bit of paperwork. But how should you invest all that money you're setting aside for your future? That's where my friend and colleague Robert Brokamp can lend a hand. As the lead analyst for Motley Fool Rule Your Retirement, he can help you determine what type of investments make the most sense for you.
You may be OK with an aggressive stance, with a lot of your money tied up in stock market index vehicles like the SPDRs (AMEX: SPY ) or Vanguard's Total Market Vipers (AMEX: VTI ) . On the other hand, you may be of the "once bitten, twice shy" persuasion, having lost a ton of your money when the Nasdaq 100-tracking Cubes (Nasdaq: QQQQ ) collapsed in 2000. In that case, you may feel comfortable only if a large chunk of your cash is safely tucked in inflation-protected treasuries, such as those held by the Lehman TIPS Bond Fund (NYSE: TIP ) .
In truth, you'll never know what kind of investments are appropriate for you until you start thinking about the right questions. Rule Your Retirement has an excellent financial planning tool that asks the right questions and can start you down your path. It's available here (for subscribers only -- if you're not yet on board, click here to get started), and it's yours to use as part of your membership.
The Foolish bottom line
As pensions increasingly crumble, it's up to you to make sure your retirement nest gets well-feathered. The sooner you start, the quicker you can get your money to instantly double for you. And once you've invested your cash, your boss's cash, and Uncle Sam's cash on your behalf, a solid investment plan will provide you with a better retirement.
Still not convinced that you can figure out how to retire without a pension? Start a 30-day free trial to Rule Your Retirement, no strings attached, andsee for yourself.