Back in the bad old days, it was easy to get shackled to a bad job by the so-called golden handcuffs of a decent pension. The rules surrounding many pension plans meant that age, years of service, and salary all factored in to how much you could take with you once you retired. While it was a fairly good system if you had the perfect career, it had at least one major drawback for the rest of us.

That drawback was this: You needed to be tethered to the same employer for your entire working career to have a decent shot at receiving that promised payout. If you left early, one or more of the funding rules would likely assure that you'd lose a large chunk of what you thought would be your pension.

Even worse, if you left one job to start another, you likely would start back at zero with your new employer. You'd lose much of the pension you had left behind, and there'd be a good chance that you wouldn't be able to erase the loss in your remaining working years.

Unlock the handcuffs
That's what makes the move away from pensions such an excellent opportunity for the modern, dynamic workforce. The current trends in employer plans -- primarily shifts to 401(k), 403(b), and SEP-IRA plans -- can be far better for participating employees than pensions ever were. There are two primary reasons for this:

  1. Your earliest dollars count the most, no matter how many times you change employers.
  2. Once you're vested, the money's yours, no matter when you leave.

These two factors alone give you a better opportunity to take control of your retirement than you ever could with a pension.

Early money wins
Let's consider that first point. The odds are that in a pension your earliest years of service count the least from a salary perspective. In many cases, they're either ignored entirely, or they don't account for inflation. As a result, time works against you with a pension as inflation eats away at the purchasing power of your promised benefits. In 1966, the median U.S. family income was $7,532 a year -- well below the minimum wage today. If you're getting ready to retire, the impact of that year's compensation on your pension calculation would be miniscule, at best.

With a retirement investment account, your money compounds over time. Say you earn 10% per year on your investments -- near the market's historical rate of return. After 40 years, every dollar invested on your behalf would be worth about $45.26. If you had socked away 10% of the median salary 40 years ago at that 10% return rate, you would have about $34,000 today -- just from that single investment. Keep up that sort of contribution throughout your career, and you can easily see how the modern plans really work to your advantage.

Leave the job, take the cash
Now, let's look at the second point. In many pensions, salary, years of service, and age at the time of separation all factor in to your payment. The combination of those clauses helps to tie people to their companies by often making it prohibitively expensive to job hop.

With a retirement investment account, on the other hand, any money you contribute -- and the growth of that money -- is yours for the taking. If you happen to work for a company that helps fund your retirement investment account, that money and its growth is also yours, provided you are vested. The law usually requires that those employer contributions vest by five years of service, though there are exceptions. This gives you the chance to leave for greener pastures every five years, without sacrificing a cent of your ultimate retirement paycheck.

The downside
While the new methods of retirement funding can be far better than pensions ever were, they do come with a catch. Unfortunately, in retirement investing accounts, you, rather than your employer, take on the risk of investing performance. That's fine if your investments perform well. As you can see in the chart below, though, not every big company has seen its shares participate in the recent market rally.


Market Cap (in billions)

One-Year Return

Sirius Satellite Radio (NASDAQ:SIRI)



Boston Scientific (NASDAQ:BSX)






Nortel Networks (NYSE:NT)



Marvell Technology (NASDAQ:MRVL)






DR Horton (NYSE:DHI)



Data courtesy of Yahoo! Finance as of 12/15/06.

If you're staring down losses like this, taking control of your retirement accounts may seem rather self-destructive. Yet with the right tools and techniques to help guide your investing decisions, you still can end up just fine -- even if you've felt the pain from one or more of these recent stinkers.

Spread the risks
The two most important techniques to help your retirement accounts perform well are diversification and asset allocation. When you diversify, you spread your risks across a wide array of investments. The easiest way to do this is to buy a broad index fund and regularly invest into it. Of course, it's not a guarantee that you'll make money every year. Over time, though, dollar-cost averaging the market like this has been an excellent way to build wealth.

Even so, if you've lived through extended bear markets like the one we had from 2000 to 2002, you know that you might want to think twice about having everything invested in stocks. That's especially true if you're close to retirement and need to start thinking about preserving, rather than building, your wealth. That's where a solid asset-allocation plan can help. By appropriately splitting your investments between bonds, stocks, and real estate, you can find the right balance to help you keep your hard-earned wealth.

Take control
With pensions giving way to self-managed retirement accounts, your financial future really is in your hands. If you manage your plans well, that future may be far brighter than you could possibly imagine. Getting started, however, can be tough. That's where my colleague Robert Brokamp can help. As the lead advisor at Motley Fool Rule Your Retirement, he has assembled a wealth of information available to members.

With that information, the guidance of the Rule Your Retirement team, and the community of like-minded current and prospective retirees, you really can take control of your future. To help you get started, take the next 30 days to look around, free. You've got nothing to lose, and potentially a comfortable retirement to gain.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any of the companies mentioned in this article. Yahoo! and eBay are Stock Advisor recommendations. The Fool has a disclosure policy.