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No. 5: Frozen Pension Funds

In fact, the Employee Benefit Research Institute's latest Retirement Confidence Survey shows that workers of all ages plan to retire later, on average, than did workers of a similar age a decade ago.

Frozen pension plans, disappearing retiree health benefits, higher ages for full Social Security benefits and inadequate retirement savings are all good reasons to stay on the job.

In fact, the Employee Benefit Research Institute's latest Retirement Confidence Survey shows that workers of all ages plan to retire later, on average, than did workers of a similar age a decade ago. The percentage of people planning to retire at 66 or older jumped from 9% in 1998 to 30% in 2008.

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But good intentions and reality sometimes collide. That's particularly true when an employer decides to downsize its workforce and offers older, higher-paid workers incentives to retire early.

When Verizon announced that it was freezing its pension plan two years ago, many longtime employees feared that the value of their pensions might decline if they hung around. Some decided to quit early and cash out their retirement accounts. But John Brennan, who was 57 at the time, knew that he couldn't afford to retire that young. He had just paid for a wedding for one daughter and was still paying off college loans for the other.

Brennan's financial adviser, Ken Roberts, of Harbor Lights Financial Group, in Manasquan, N.J., asked him one important question: Do you enjoy your job? If you do, Roberts advised, stick it out a few more years and max out your retirement contributions. "Your 401(k) is the first and best place to accumulate money, and if your company offers a matching contribution, it is virtually a guaranteed 100% rate of return on your cash flow," says Roberts.

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Let's say you earn $100,000 a year, and your company matches 50 cents for every dollar you contribute to your 401(k) plan up to the first 6% of pay -- the most common matching formula. If you contribute $6,000, your company will kick in $3,000 for a total of $9,000.

If you're in the 25% federal income-tax bracket, your $6,000 contribution reduces your paycheck by only $4,500 but your account is worth $9,000 at the end of the year -- a 100% return on your investment, says Roberts. Your returns can be even higher if you factor in investment gains and savings on state income taxes. The higher your tax bracket, the bigger your return.

Of course, if you don't enjoy your job, consider retiring early and looking for something else. "You may not make as much money as you're earning now," says Roberts, "but even if you earn half as much, combine that with your retirement savings and you might be able to make the numbers work."

Brennan, an engineer who had nearly 30 years on the job at the time his pension was frozen, decided to stay at Verizon. Now he's glad he did. His pension balance has actually increased a bit, and he continues to contribute to the company 401(k). He expects to work another two years until he is 62. His wife, Georganne, plans to work as a school nurse for a few more years until she qualifies for a pension.

So are the Brennans on track for a comfortable retirement? "I think we're in pretty good shape," says John.

NEXT: SAVING IN A BEAR MARKET

SEE ALL NEST-EGG WOESNo. 1: Late Start on SavingNo. 2: Lack of Focused Strategy No. 3: Big Nest-Egg LossesNo. 4: Little Savings for RetirementNo. 5: Frozen Pension FundsNo. 6: Saving in a Bear Market

HOME: Catch Up on Your Retirement Savings

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