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

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. 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 important tools:

  • Money.
  • Time.
  • A strong plan.

The first of those is pretty obvious -- of course you'll need money to retire. Just because you plan to stop working, that 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 free time. And all of those wonderful things require cash.

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

Time's a-wasting
Of course, if you had this kind of money, you wouldn't still be reading. 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 million target:


8% Annual

9% Annual

10% Annual

11% Annual














































As you can see, the earlier you start, 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 10% to 11%. Even assuming that average return, not all of the stocks within it move in unison. For instance, while the index itself has lost around 5.6% in the past year, look at the performance of some individual constituents within that index:


One-Year Gain (Loss)

Countrywide Financial (NYSE: CFC)


D.R. Horton (NYSE: DHI)


Tiffany (NYSE: TIF)




H&R Block (NYSE: HRB)


Archer Daniels Midland (NYSE: ADM)


Apple (Nasdaq: AAPL)


From Yahoo! Finance through April 22, 2008.

On one end, the subprime meltdown has essentially destroyed housing lender Countrywide and has left homebuilders such as D.R. Horton much weaker. On the other end, strong energy and grain prices have allowed companies such as Archer Daniels Midland to thrive, and continuing demand for high-tech gadgetry has kept Apple on top. 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 the three 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 the 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. Learn more: Click to start your 30-day free trial.

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

At the time of this publication, Fool contributor Chuck Saletta did not own shares in any company mentioned in this article. Apple and FedEx are Motley Fool Stock Advisor selections. The Fool has a disclosure policy.