Retire With a Real Million Bucks

A million dollars is still a lot of money. And if your house is paid for and your kids are on their own, it's enough for you to retire on and live out your golden years comfortably on the $40,000 or so a year you could pull from it. That -- and the fact that it's a nice round number with a brand new comma in it -- makes $1,000,000 a great target for retirement savings.

There's only one small problem: A dollar doesn't buy nearly as much as it used to, and the more times goes by, the less each greenback is worth. While today's million might generate enough income for a comfortable lifestyle, that same million 20 years from now probably won't.

How bad can it get?
In fact, at 4% annual inflation, it'll take around $2.2 million 20 years from now to generate the equivalent of that $40,000 a year. If you're further away from retirement than that, the real target should be even higher.

And that's why investing your retirement savings is crucial. Most of us can't save multiple millions of dollars -- but we can invest our savings to earn returns that get us to that magic number.

Retirement portfolios commonly try to balance risk and reward through broad diversification that includes fixed income. With 30-year Treasury bonds yielding about 4.24%, a 65% stock / 35% bond portfolio would have an expected long-term return of about 8%.

Put that 8% potential return against 4% inflation, and the table below shows how much you need to invest to reach that inflation-adjusted $1,000,000 by the time you'll likely be ready to retire:

Ouch.

Stocks for the long run
If you're serious about beating inflation and retiring with a real million bucks -- and you can't afford to save thousands of dollars every month -- you need to own stocks, volatility warts and all. Not only is the average annual rate of return around 10% -- and that two percentage points makes a big difference over the course of years of investing -- there's another simple reason why stocks can fight inflation the way no other asset class can.

When inflation rears its ugly head, as it is now, the companies behind those stocks can pass on their increased costs to consumers in the form of higher prices. By passing on those higher costs, companies can keep pace with inflation. That enables their owners' net worth to also keep pace with inflation -- while still reaping the benefits of any organic growth as well.

That's how long-term investments in companies like these have been able to help their owners build wealth even in the face of inflation:

Historical data from Yahoo! Finance as of Sept. 10, 2008, using split- and dividend-adjusted numbers.

Become a real millionaire
Whether you're facing retirement now or saving for a future that is decades away, investing in strong companies with proven track records and solid futures will help you earn a comfortable retirement -- even though inflation will likely be the largest, most expensive barrier you'll face.

At Motley Fool Rule Your Retirement, we have many strategies for beating inflation and creating a comfortable retirement. If you're ready to take on that demon, join us today. A 30-day free trial will provide you with model portfolios, investment recommendations, and in-depth discussions of different asset classes. Click here to get started -- there's no obligation to subscribe.

At the time of publication, Fool contributor Chuck Saletta owned shares of Merck and General Electric. Wal-Mart is a Motley Fool Inside Value selection. The Fool has a disclosure policy.