I live in the shadow of Lockheed Martin's Space Systems division, one of the last few firms in the state of Colorado that still honor pensions for long-term employees.

As a self-employed writer, I've no such luxury. And chances are, you're like me. We'll have to fund 100% of our retirement costs -- from salary to vacations to medical care. It's a scary thought, to be sure. But don't count me among the downer crowd. I'm encouraged because I know it's possible to create my own pension. A fund where, conservatively, we can expect to get more than a third of what we'll need without touching a dime of principal.

Let me assure you that this isn't some gimmick. No, I don't have a set of Ginsu knives to offer you. No, I've never, ever worked for Ronco. And, no, you won't get a free Chia Pet just for reading this article all the way through. But I will tell you how to fund a substantial portion of your retirement with dividends.

The single greatest wealth creator in the stock market
Sound impossible? It shouldn't. According to Standard & Poor's, dividends have accounted for 42% of the S&P 500's total return since 1926.

And dividends still pay. Take Motley Fool Income Investor, for example. Chief analyst Mathew Emmert has been at it since the summer of 2003, and his picks have beaten the market by more than two percentage points as of this writing.

Mathew's returns would be even better if we reinvested the proceeds. We don't because it's Income Investor, and we assume that many of Mathew's subscribers are pocketing their payouts.

There's nothing fundamentally wrong with that strategy, of course. No less than Warren Buffett does it. He's said many times that he believes he can earn higher returns by allocating the proceeds from dividends into his best stock ideas. It's hard to argue with average returns north of 20% over the course of 20 years, as Buffett has done.

Start slow, end strong
Yet Joe and Jane Oddlot can't be assured of such performance. For them, reinvesting is a wonderful way to create wealth. Or to fund retirement. Bear with me as we go through an example.

Let's say you are an average 30-year-old American who makes $45,000 annually and who wants to hang 'em up in 30 years. You figure that you'll need approximately $60,000 annually in retirement but have been in the workforce for less than a decade and don't have much savings-wise. In fact, all you've been able to muster is $10,000 in a passbook account. But you've spent some quality time here at Fool.com and you're now interested in growing your nest egg. Good for you!

Pass time, collect $12,000
Your best strategy, of course, is to invest in a well-capitalized group of dividend payers, and then add to your positions regularly. But let's say all you can afford is $2,000 per year. Let's also assume that these stalwarts begin at $10 per stub, grow their per-share prices 6% annually, and hike their payouts to maintain an average 3% dividend yield over the next three decades. What would you end up with when the clock strikes midnight on Jan. 1, 2037? How about a little more than $400,000?

That's right, your cash investment of $70,000 would have risen nearly 500% and provided you with annual dividends equal to more than $12,000. Even better, adding just 3% a year in capital gains from 2037 on would add another $12,000 annually, raising your total zero-effort pension income to $24,000 per year. Pretty impressive, eh? Can you imagine what would happen if you saved even more?

Not that this strategy is without risk. These are stocks -- not bonds -- that we're talking about. Market volatility could make for a bumpy ride, and you definitely can't count on steady 3% returns. That's why you'd also want to develop an asset-allocation mix that will allow you to take losses one year and better-than-average gains the next. Still, on average, 3% ought to be achievable for most conservative investors.

Meet the Dividend Achievers
But what if you want to do better than 3%? You can, if you pick better stocks. And there are several sources to assist you in the effort. One of the best is Mergent's list of "Dividend Achievers," companies with an untarnished record of raising their payouts over the course of decades. Many of them have been profiled on our digital pages before, including City National (NYSE:CYN), Expeditors International (NASDAQ:EXPD), Paychex (NASDAQ:PAYX), Procter & Gamble (NYSE:PG), and Emerson Electric (NYSE:EMR). Mergent updates the list of Dividend Achievers each quarter in book form. The latest, covering the third quarter of 2005, can be had here. Your local library may also carry a copy in its finance and investing section.

It's also worth your time to check out fellow Fool Rick Munarriz's weekly column, which covers companies that have hiked their dividends. After all, firms that boost their payouts are usually on their way to outsized earnings increases and, thusly, stock market returns. Find Rick's latest coverage of these stalwarts here.

A final Foolish offer
But all of this assumes that you want to do your own work when it comes to dividend investing. Maybe you don't. That's fine. Mathew is here to help. Take a risk-free 30-day trial to Income Investor and you'll get access to more than 50 recommendations immediately. You'll also get valuable tips for handling taxes on dividend payers as well as insights on more complex investments such as real estate investment trusts and master limited partnerships. Or you can renew your current subscription and get Stocks 2006, which features our analysts' best picks for the year ahead, free.

Whatever your preference, promise me that you'll seriously consider dividend investing for your long-term planning. With the odds stacked against Social Security and company-backed pensions, it may be the one and only way to make sure you get paid in retirement.

Fool contributor Tim Beyers wonders if he'll ever retire from writing. Not likely. Tim didn't own shares of any companies mentioned in this story at the time of publication. You can find out what else is in his portfolio by checking his Fool profile . The Motley Fool has an ironclad disclosure policy .