The 3 Things You Need to Retire

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 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, 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 freedom. 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 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 million target:

Time (Years)	8% Annual Returns	9% Annual Returns	10% Annual Returns	11% Annual Returns
10	$5,466.09	$5,167.58	$4,881.74	$4,608.33
15	$2,889.85	$2,642.67	$2,412.72	$2,199.30
20	$1,697.73	$1,497.26	$1,316.88	$1,155.22
25	$1,051.50	$891.96	$753.67	$634.46
30	$670.98	$546.23	$442.38	$356.57
35	$435.94	$339.93	$263.39	$202.91
40	$286.45	$213.61	$158.13	$116.28
45	$189.59	$135.05	$95.40	$66.90
50	$126.08	$85.70	$57.72	$38.57

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 of the stocks within it move in unison. For instance, while the index itself has gained around than 3.5% in the past year, check out the performance of some of the individual constituents within that index:

Company	One-Year Gain (Loss)
E*Trade Financial (Nasdaq: ETFC)	(83.6%)
Fifth Third Bancorp (Nasdaq: FITB)	(36.1%)
Xerox (NYSE: XRX)	(5.5%)
ExxonMobil (NYSE: XOM)	23.7%
Intel	34.1%
U.S. Steel (NYSE: X)	59.9%
Transocean (NYSE: RIG)	79.7%

From Yahoo! Finance through Dec. 27, 2007.

On one end, the housing meltdown is hampering lenders like Fifth Third and E*Trade. On the other end, strong international growth is raising global demands for energy and steel, helping U.S. Steel and Transocean absolutely shine. 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.