Most of us share the dream of financial independence. It appears time isn't exactly on our side: Modern life is expensive, and it's getting more so every year. Whether it's college tuition, medical care, property taxes, or utilities, the costs of standing still just seem to keep climbing. Add benefit reductions into the mix, and it can seem like that goal will forever be just beyond your reach.

Let's look at some recent retirement benefit cuts from sizable and well-known employers:

Company

Plan cut

UAL (NASDAQ:UAUA)

Froze pension plan, sent plan to PBGC while in bankruptcy.

IBM (NYSE:IBM)

Freezing pension plan, shifting employees to 401(k).

Verizon (NYSE:VZ)

Plans to freeze pension for non-union employees by July 2006.

Alcoa (NYSE:AA)

Eliminated traditional pension for new hires, shifted to 401(k).

Ford (NYSE:F)

Capped retiree health-care benefits, increased charges for active employees.

Hewlett-Packard (NYSE:HPQ)

Freezing pension plan, shifting employees to 401(k).

DaimlerChrysler (NYSE:DCX)

Increasing health-care premiums for employees and retirees.



Even if your company hasn't already cut its programs, chances are it's considering making benefits "more in-line with the industry." That, my friends, is thinly veiled code for reducing benefits. With the tide turning against employer-paid benefits and retirement plans, it's now more important than ever to take control of your financial future. You need a plan, a road map to help guide you to -- and through -- your golden years.

Three simple steps
There are three key components to your financial freedom.

  • Knowledge of where you are.
  • Understanding where you want to be.
  • Instructions on how to best get to your destination, given your starting point.

It sounds simple, but there's a lot of expertise and planning that goes into mastering these three. Without proper guidance, it's easy to get lost. With the right road map, however, there is tremendous opportunity in this new world. If you plan ahead and manage your money well, you can end up far better off than you would have under a traditional pension scheme.

A guidepost to get you started
With the demise of the traditional pension, the most powerful tool in a modern employee's arsenal is probably a 401(k) plan. If you have one available and use it to its full benefit throughout your career, it just might make you a millionaire. Consider these scenarios:

Years to Retirement

Your Annual Contribution

Company Match

Total Annual Contribution

Return Rate

Retirement Value

16

$15,000

100%

$30,000

10%

$1,078,492

20

$14,000

50%

$21,000

9%

$1,074,363

30

$7,500

25%

$9,375

8%

$1,062,030

40

$5,500

0%

$5,500

7%

$1,097,993

49

$1,000

0%

$1,000

10%

$1,057,190



There are four key variables affecting retirement value:

  • Your employer's matching program.
  • How well your investments perform (and how aggressively you invest).
  • How long you're planning to work.
  • How much money you can put aside each year.

These will help determine how and when you'd likely hit that millionaire mark.

Put plans in place
Of course, saving that kind of money throughout the year may seem daunting, until you realize another benefit of the 401(k) plan -- contributions are tax-deductible. If you're in the 25% federal and 5% state tax brackets -- and can itemize your federal deductions -- every $1,000 you contribute costs you $712.50 of spendable money. Over the course of a year, that means you're only losing about $1.95 a day (out of pocket) for every $1,000 you're investing in the plan. Assuming you're fortunate enough to receive a 100% employer-matching contribution, it gets even better: That $1,000 in your 401(k) account may cost you less than $1 a day out of pocket.

If you happen to be an 18-year-old who doesn't plan to leave work until you turn 80, a $1-a-day retirement savings plan may be viable. If not, you'll have to get a bit more creative. Because each person has a different background and available resources, there's simply no one-size-fits-all retirement strategy. That's where Motley Fool Rule Your Retirement can help. Editor Robert Brokamp has assembled a team of experts and a collection of simple-to-read references to help you along your journey. With the resources available as your guide, you can map out where you are and where you'd like to be -- and all points in between. You can then start making better use of your 401(k) and other retirement tools.

The Foolish bottom line
Now, more than ever, your financial future is in your hands. With traditional pension-based retirement programs in decline, the sooner you take control of the reins, the better that future can be. The 401(k) is just one of many programs, options, and opportunities that may be available to you. Taking advantage of those tools is now your job; helping you has always been ours.

Are you ready to take the first step toward finding your path to a more financially secure future? Click here to join Rule Your Retirement and get started now. Still not sure if it's right for you? Our 30-day free trial will get you complete access to all our tools, discussion boards, and past issues, with absolutely no obligation.

At the time of publication, Fool contributor Chuck Saletta had no ownership stake in any of the companies mentioned in this article. The Fool has a disclosure policy.