First the bad news: The conventional retirement system is rapidly falling apart. Social Security doesn't expect to be able to make all its expected payments starting in 2041. Many of the companies that still have pension plans are either cutting them back or eliminating them entirely.

The trend is clear. Nobody else will take care of your financial future. With the social safety net failing and guaranteed pensions falling by the wayside, if you ever want to retire, you need to take matters into your own hands. So if you want your golden years to be comfortable, you'd better get started. Now.

Your keys for success
A successful retirement is still possible, if you're willing to make the most of three very important tools:

  • Money
  • Time
  • A strong plan

The first of those should be pretty obvious -- of course you'll need money to retire. Just because you plan to stop working doesn't mean you plan to stop spending. You'll still have to eat, and you may just want to travel the world, spoil your grandkids, or do any number of other wonderful things with your newfound freedom. And all those wonderful things require cash.

So you'll need a target. Let's pick $1,000,000 as a starting point for a goal -- you can adjust it from there to match your own idea of a successful retirement and your own projections for inflation.

Time's a wasting
Of course, if you already had that kind of money, you wouldn't still be reading this. That's where the second tool -- time -- comes in handy. This table shows how much you'll need to sock away every month to reach that $1,000,000 target:


8% Annual

9% Annual

10% Annual

11% Annual














































As you can see, the earlier you get started, the easier and cheaper it is to reach your goal.

Get there from here
As for those 8% to 11% potential returns, those numbers weren't just picked out of a hat. Historically, the S&P 500 has earned investors an average annual return of somewhere around 10% to 11%. Even assuming that average return, not all the stocks within it move in unison. For instance, while the index itself has gained just more than 3% in the past year, check out the performance of some of the individual constituents within that index:


One-Year Gain (Loss)

Centex (NYSE:CTX)


New York Times (NYSE:NYT)


Bank of America (NYSE:BAC)


Caterpillar (NYSE:CAT)


PepsiCo (NYSE:PEP)



38.95% (NASDAQ:AMZN)


From Yahoo! Finance through 11/27/2007.

On one end, the housing meltdown is hampering lenders like Bank of America and homebuilders like Centex. On the other end, the strong move to online retail and entertainment is helping Google sell contextual ads and Amazon sell virtually everything else. Mix them up with 493 other companies, and you get the performance of the index on average.

The problem with investing only in stocks, though, is that sometimes, even a broad stock index can fall. To temper that risk, many investors further diversify their holdings into bonds as well as stocks. That risk reduction doesn't come free, though -- the price for calm is a lower overall expected return. Depending on the specifics of your holdings, it's quite easy to see your expected returns fall from the 10% to 11% range to the 8% to 9% range -- or even lower.

Get started the right way
Remember those three very important tools:

  • Money
  • Time
  • A strong plan

As you've probably noticed, there are several questions you need to answer before you can build and execute a retirement plan that works for you. Yet you must answer them if you want any chance of both retiring well, and reaching retirement without excessively sacrificing your quality of life along the way.

Knowing the right questions -- and how to find their answers -- are critical components to creating your plan. Fortunately, my colleague Robert Brokamp and his team are masters at helping people build the plan that takes them from here to retirement. Their online help, planning tools, and regular newsletter are all included with your membership to Motley Fool Rule Your Retirement. To learn more or to start your 30-day free trial, click here.

This article was originally published Oct. 5, 2007. It has been updated.

At the time of publication, Fool contributor Chuck Saletta owned shares of Bank of America. Bank of America is a Motley Fool Income Investor selection. Amazon is a Stock Advisor selection. The Fool has a disclosure policy.