Retirement rules of thumb don't always apply

— -- You may have celebrated the new year in 2000 more worried about whether your computer would work than whether you'd have enough for retirement. After all, you'd been saving diligently, and returns from stocks and bonds were spectacular.

The upcoming new year may find you far less confident than you were going into 2000. Stock returns have been wretched. You may be able to save less, either because you're squeezed by the cost of living, or because you've had to take a lower-paying job.

How much do you need to retire? Plenty. But before you panic, make a few calculations to see where you stand. You might be better off than you think — and if you're not, you can plan for that.

Your first calculation is figuring out how much you'll need. Financial planners often say you should plan on spending 75% to 80% of your current after-tax salary in retirement. After all, you won't be throwing money into retirement accounts anymore, and you won't be spending money on work expenses, such as commuting.

But many retirees find that they spend as much in retirement as they did before — if not more. "It's the dumbest rule of thumb I've ever heard," says Harold Evensky, a Coral Gables, Fla., financial planner. "The one thing that changes dramatically when you retire is the amount of time you have on your hands, and time costs money."

Those who want to travel, for example, can spend more on the road than they could while they were working, and those who want to golf can do it more frequently. Unless you'll pay off your mortgage by the time you retire, you should probably figure on living off the same amount in retirement as you do now — at least for the first few years.

Let's say you decide you need $5,000 a month in retirement, or $60,000 a year. First, count up any income you may get from other sources, such as Social Security or pensions. You can get an estimate of your Social Security benefit at www.socialsecurity.gov. We'll assume you get the average Social Security benefit — $1,200 — and no pension. You'll need to make up the $3,800 monthly shortfall — $45,600 a year — from your savings.

As a rule of thumb, you can start with an initial withdrawal of 4% to 5% with relatively little fear of running out of money in 30 years. (Half of all 65-year-olds will live another 18.6 years, according to the Centers for Disease Control and Prevention. Half will live longer.)

Why such a low withdrawal rate? Two reasons. First, taking withdrawals means you'll reduce your gains and increase your losses. If you earn 7% in one year and withdraw 5%, your account will grow just 2%. If you lose 7% one year and withdraw 5%, your account will shrink by 12%.

Secondly, the calculation assumes you'll need to adjust your withdrawals for inflation. If inflation averages 3% a year, $3,800 will have the buying power of $2,130 in 20 years. That's a 44% decrease in purchasing power.

But that's another rule of thumb that many disagree with. "Portfolios usually have a mix of safe stuff and risky stuff, and safe stuff is paying the least it's ever paid," says Barry Glassman, a McLean, Va., financial planner. "You either need to take more risk, live on less, or accumulate more to start with."