If you want your retirement nest egg to last as long as you do, the general rule of thumb is that you should withdraw 4% of the initial value of your diversified portfolio, adjusted each year for inflation. With that rate, you can be fairly confident that you won't run out of cash before you leave this world.

Only there's one small problem. That 4% rule means that for every $10,000 in income you're trying to replace, you'll need to have $250,000 worth of savings. To replace, say, a $40,000 salary, you'll have to amass a cool $1 million.

Make that two small problems
Of course, you don't want $40,000 in today's dollars -- you want the future equivalent of $40,000. And that can get downright ugly. Check out what $40,000 will look like in tomorrow's dollars -- and how much you'll need to save to have its equivalent in retirement.

to Go

4% Inflation
Adjusted Income





























While $1 million can sound daunting, it's nothing next to $4.8 million. So what can you do to secure your retirement -- without having to save millions of dollars?

1. Plan for Social Security
Social Security helps your retirement in two ways. First, as soon as you stop drawing a paycheck, you stop paying Social Security and Medicare taxes. That's 7.65% of your salary you won't have to replace. As a result, instead of $40,000 per year, you really only need to replace $36,940 each year.

Second, Social Security will pay you something back for all those years of taxes you paid into it.

According to Social Security's online quick calculator, a 30-year old making $40,000 will receive a benefit of $1,478 per month -- $17,736 per year -- in today's dollars beginning at age 67. Add that to the taxes you won't have to pay, and the total income you need to replace is down to only $19,204 per year.

2. Pay off your house
Owning your home free and clear can help you out as well. Chances are, your mortgage is your single biggest monthly expense. While the taxes and insurance payments for your home will never go away, once the loan is paid in full, you won't have to pay principle or interest.

Paying off your mortgage before you retire will pay off handsomely: Assuming that principle and interest works out to about 15% of salary, that's another $6,000 per year that doesn't need to be replaced.

A lifestyle that required $40,000 per year now needs a far more achievable $13,204.

3. Invest in the stock market
Of course, you still have to sock some money away to have a comfortable retirement. It's just not the multiple millions of dollars you may have thought from simply looking at your salary and extrapolating.

to Go

4% Inflation
Adjusted Income





























Perhaps the easiest way to hit that goal is by investing in the entire market. That way, you get access to the potential growth available from owning stocks, without the effort and additional risk of trying to figure out which particular stocks will shine.

An index fund like Vanguard's Total Stock Market (VTSMX) will give you broad exposure to virtually every U.S. based public company at once. That includes such reasonably priced, profitable titans as these:


Market Cap
(in Billions)

TTM Earnings
(in Billions)

PE Ratio

McDonald's (NYSE:MCD)




Sysco (NYSE:SYY)




ExxonMobil (NYSE:XOM)




Merck (NYSE:MRK)




United Technologies (NYSE:UTX)








Dow Chemical (NYSE:DOW)




Assuming the historical average market returns of 10% annually, saving just $250 a month beginning at age 30 -- a total of $120,000 -- and investing it in the Total Stock Market Index would earn you the $1.5 million you need to have socked away to fund your retirement.

If 30 was longer ago that you'd like to admit, your inflation-adjusted target will be lower -- and saving a little bit more will help get you there faster.

Get the best retirement you can
Preparing for retirement means more than dreaming of sandy beaches. It means looking ahead to see what you'll need -- and planning to make that happen.

At Motley Fool Rule Your Retirement, we help our members maximize their retirement by offering model portfolios, index fund recommendations, and interviews with both money managers and people who've retired early. If you'd like to join our community and want to put those tools to work for you, click here for a 30-day free trial -- there's no obligation to subscribe.

At the time of publication, Fool contributor Chuck Saletta owned shares of Sysco and Merck. Sysco and Dow Chemical are Motley Fool Income Investor recommendations. The Fool has a disclosure policy.