Step 4: Free Money You have done your homework and now you know how much you have to accumulate to be able to retire and live comfortably. What now? The next step is to milk your employer for everything you can.

We are talking about retirement plans. Most mid-size and large employers have a retirement plan in place for their employees. Many have two, and some three or more. These plans come in a wide variety of flavors, some good and some not so good. All of these, though, can help you achieve your retirement desires if you understand them fully and integrate them into your planning. (We have a rundown of the major types of retirement plans in our Retirement Primer.)

Remember that employee handbook you received on the day you were hired. Dig it out, dust it off, and read it. Buried in those pages you will find a summary plan description of the retirement plan(s) available to you as an employee. Those pages will tell you what kind of plan you have, when you become eligible to participate, and the ultimate benefit you will receive. It is boring reading, but what you will find in those pages is your FREE MONEY.

What will that free money look like? It might be called a "defined benefit plan" or a "company pension", phrases used to describe one type of plan commonly offered by employers. In this vehicle, employers typically do all the funding with no contributions by employees. The final benefit is determined by a formula often based on years of service, an average wage, and a percent of pay. For instance, the plan could say your final benefit will be a "joint and 50% annuity calculated as 1.5% times your years of credited service times the average of your last three years' base annual wage."

What does that mean to you? It means that with 30 years of service, at retirement your pension will replace 45% of your average annual wage for the last three years of work. It means it is less money you have to save each year between now and retirement because your employer is relieving you of part of that burden, and that means more of your resources can be devoted to other goals that are also important, like maybe putting the kids through college.

The summary plan description will also tell you your options at retirement. You may be able to receive a lump sum payment instead of a lifetime annuity. That way, if the plan has no automatic cost of living adjustment to the annuity payment, you can invest the money to achieve that growth. Maybe you can take an annuity that will give a surviving spouse more than half your benefit after you die, something like two-thirds or 100% instead. The summary plan description will tell you how long you have to be on the job until the money is 100% yours (the vesting schedule). It will tell you what happens if you leave your job before retirement, and what happens should you leave this world earlier than you anticipate. This is all valuable information because it helps to refine the assumptions we must make in the calculation of our retirement needs.

Say your company offers a 401(k) plan. Take out your 401(k) summary plan description and look for:

• When you may participate.
• The types and perhaps the risks of the investment options you have within the plan.
• How often you may switch between those options.
• Whether early withdrawals for hardships or personal loans are permitted.
• What distribution options are available when you separate or retire.
• How much your employer will contribute to the plan on your behalf, and when you will vest in those contributions. This is the FREE MONEY.