There’s no magic number for how much income to live on in retirement. But Money Magazine’s Walter Updegrave offers simple steps to forming a personal strategy.

Question: I’m looking to retire in the near future and want to know how an “everyday” investor like me can develop a good strategy for taking income from my savings. Any advice? –Nate, Carbondale, Illinois

Answer: This is the single biggest issue facing soon-to-be retirees like yourself. How do you make that transition from building a nest egg for retirement to cracking that nest egg for everyday living expenses - and do it in a way that doesn’t deplete your savings too soon?

I’m sure I’m not revealing any secret when I say that there’s no single correct answer to this question. The strategy you develop should be tailored as much as possible to your specific circumstances - how much income you need, how long you think you will need it, the amount of savings and other resources at your disposal and how much risk you’re willing to take that you could outlive those resources.

So I can’t give you a customized plan. But if you follow these three steps - and then monitor your progress throughout retirement - you should be able to develop a retirement income strategy that works for you.

1. Estimate how much income you’ll need: Relying on a rule of thumb like assuming you’ll need 70% to 90% of your pre-retirement salary to live comfortably after you retire may be okay when retirement is still a far-off mirage. But once you’re within five or so years of calling it a career - or if you’ve already done so - you should have a much more realistic idea of how much money you’ll need in retirement for everything from basic living expenses to discretionary items like travel and entertainment. You can create a retirement budget with a pencil and paper, but you’ll have much more flexibility in tracking your outlays and updating your spending habits if you do it online or use software.

Remember to factor in inflation. Even if the cost of living rises at a tame 2% a year, your spending would have to increase nearly 50% over 20 years just to give you the same purchasing power you have today. Keep in mind that you may also need a reserve to fund the occasional splurge, unexpected expenses and higher health-care costs later in retirement.

2. Figure out where you’ll get that income: Start with assured sources of income such as Social Security and a traditional company pension if you’re fortunate enough to have worked for a company that still offers one. You can get an estimate of how large a monthly Social Security check you’ll qualify for by clicking here. If you’ll receive a company pension, your HR department can tell you how much it pays and give you details on various options you may have for collecting it.

I doubt that Social Security alone will allow you to maintain your pre-retirement living standard. Throw in a company pension and that may still be the case. But that’s where all that money that you’ve been socking away in 401(k)s, IRAs and other retirement accounts comes in.

Here, the challenge is to pull enough from your investments so that, combined with Social Security and pensions, you have enough income to enjoy your retirement, but not so much that you jeopardize your financial security later on.

If you want a high level of assurance that your savings will support you for 30 or more years, you should generally limit your withdrawal in the first year of retirement to 4% to 5% of the value of your retirement investments. You would then increase this amount each year for inflation to keep your purchasing power in line with rising prices.

So if you have retirement savings of $500,000, you might withdraw $20,000 the first year of retirement. If inflation were running at, say, 3% a year, you would increase that amount to $20,600 the next year, $21,200 the next, and so on.

As I’ve noted before, this doesn’t mean you have to stick to the same withdrawal rate religiously throughout retirement. Indeed, you should re-evaluate your withdrawals at least every couple of years. If your portfolio has been racking up gangbuster returns for several years, you might want to give yourself a raise. After all, you don’t want to live like a pauper and die with a huge bank account. On the other hand, if you run into a series of lousy returns or outright losses, you might want to scale back your withdrawals for a bit to give your investments a chance to recover.

3. Deal with the shortfall, if you have one: If Social Security, a pension and reasonable withdrawals provide enough cash for you to live the way you want, congratulations. Enjoy retirement.

But it wouldn’t surprise me if you find that you’re coming up a little short, in which case you can consider any number of adjustments. One possibility is to put off retiring a few years. The extra time in the workforce will allow your nest egg to grow, allowing for bigger withdrawals, while postponing Social Security can significantly boost the size of the monthly check you’ll collect.

Other options include downsizing to a smaller home or taking out a reverse mortgage and finding part-time or consulting work (as I pointed out in Money Magazine, you need to be realistic about what sorts of jobs are available and how much you can earn).

You might want to compare the cost of living in different cities and think about relocating to an area with lower living expenses.

Of course, doing all this requires a bit of number crunching. You do that on your own with the help of some online tools. For example, Fidelity’s Retirement Income Planner can help you create a detailed retirement budget and estimate the odds that your savings and other resources will be able to support you throughout retirement. (The calculator is free to non-Fido customers, but you must register at the site.) And T. Rowe Price’s Retirement Income Calculator can show you how long your savings are likely to last given different withdrawal rates and investment strategies.

If you don’t have the time or inclination to rev up a calculator, you can always hire an adviser to run the numbers for you. You can get the names of financial planners in your area by clicking here and here.

But whether you do it on your own or hire someone to help you, the important thing is that you develop some reasonable strategy for creating regular income in retirement. Fail to do that, and your retirement could be adventurous, but not in the way you hoped.

Adviser-recommended annuities aren’t always a red flag, but proceed with caution. Make sure you know what you’re getting into before you buy in says Money Magazine’s Walter Updegrave.

Question: My 63-year-old mother earns about $1,200 a month, has $90,000 in savings and, as a result of a recent refinancing, has a $90,000 30-year mortgage. In three years she will begin collecting an estimated $1,300 a month from Social Security. A financial adviser suggests she put $60,000 into a variable annuity that is guaranteed to double in value in 10 years. Is this a good idea? –David, Denver, Colorado

Answer: Whenever someone tells me they’re considering an investment that purports to deliver lofty guaranteed returns, my antennae automatically go up. Doubling your money in 10 years amounts to an annualized 7.2% gain, a guarantee that borders on too-good-to-be-true in almost any market, especially today’s.

When this investment involves an annuity, I become even more suspicious because annuities are notorious for hitches and complications that can make them far less appealing than they seem.

And when I see that this annuity is being pitched to an older person, alarm bells really begin to go off for me because regulators have long warned about sales people earning big commissions by convincing seniors, often at “free lunch” seminars, to put their money into annuities and other investments that are often inappropriate.

I don’t say all this because I am “anti-annuity.” On the contrary, I think in many cases it can make sense for retirees to devote a portion of their savings to a certain type of annuity - an immediate annuity, a.k.a an income or payout annuity - while leaving the rest in conventional investments like stock and bond mutual funds. The idea is that the annuity can offer a guaranteed lifetime income, while the funds can provide liquidity as well as long-term growth. (For more on how this strategy might work, click here.)

Beware of hidden fees

But variable annuities are a different breed. They’re often sold more as tax-advantaged investments than income vehicles. With a variable annuity you get to invest in “subaccounts,” essentially mutual fund portfolios, whose gains are sheltered from taxes as long as your money remains in the annuity.

That sounds just peachy, but there are downsides too. When you pull those gains out of an annuity, they’re taxed at ordinary income rates, even if they’re long-term capital gains that are normally taxed at more attractive long-term capital gains rates. And most annuities also carry high fees that can dramatically reduce their returns and, in my opinion, undercut their effectiveness.

Over the past few years, many advisers have begun selling a type of variable annuity that’s designed to provide retirement income. It’s called a variable annuity with a guaranteed minimum withdrawal benefit. But as I’ve noted before, I believe the combination of this annuity’s mind-boggling complexity and generally blimpish fees make it an inferior choice to a combination of a plain-old immediate annuity and mutual funds.

I don’t know which type of variable annuity your mom is being pitched. But I do know that she needs to understand what it costs and how it actually works.

Just getting a handle on costs can be daunting because the disclosure of fees is, how should I put it, so non-consumer friendly that you can’t help but wonder if annuity sellers are purposely making it difficult for people to understand what they’re paying. I’ve proposed an E-Z Annuity Fee Disclosure form and, who knows, maybe one day annuity companies and regulators will come up with something similar (or better) on their own to help people like your mom.

As for understanding how the annuity works, that’s an even bigger challenge. Let’s start with that guarantee you mentioned. What exactly is guaranteed to double in 10 years? You might assume that it’s the value of your account - that your mom invests $60,000 and in 10 years is guaranteed to have $120,000 no matter what happens in the financial markets.

But there may be any number of strings attached to that sum. For example, your mom might not actually be able to withdraw $120,000. To collect on the guarantee, she might have to take that amount in payments over the rest of her life. And the annuity company could pay a subpar return during that time, in effect taking away at the back end the alluring gain the annuity appeared to deliver the first 10 years.

Your mom also needs to know what happens if she has to get to her money for unexpected expenses or an emergency. Most variable annuities come with surrender charges that can start at 10% or more and take years to disappear. Many annuities allow you to withdraw up to 10% of your account value with no withdrawal charge, but withdrawals can also affect the guarantee. (Withdrawals from an annuity before age 59 1/2 can also trigger a separate 10% IRS penalty tax. That’s not a concern for your 63-yer-old mom, but other readers should keep this tax in mind.)

My advice is that you and your mom sit down with an adviser and figure out how much income she’ll need in retirement and how she should get it given her resources. She may not need an annuity. After all, Social Security provides lifetime income that’s adjusted for inflation. If an annuity does make sense, the adviser can help her decide which type is right for her.

A fee-only planner willing to work on an hourly or flat-fee basis would be most likely to provide the most independent advice. You can find such planners in your area by clicking here.

One final note: I couldn’t help but wonder whether your mom’s $90,000 in savings came from the proceeds of her $90,000 refinancing. That led me to wonder whether the adviser recommending the annuity also recommended the refi.

If so, I’m not saying there’s anything necessarily sinister going on. But it would raise additional suspicions in my mind about the adviser’s motives, especially given all I hear about seniors being steered into reverse mortgages by people looking to sell them annuities or other products. If you come to the conclusion that the annuity salesman was behind the refi and that the goal was to sell your mom an annuity she didn’t really need, I’d recommend reporting the incident to the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), your state securities regulator and your state insurance department.

I think it’s worthwhile keeping regulators informed about what’s going on given all the inappropriate investments, scams and other ploys being directed at seniors these days. Who knows? The information might prove helpful later on for someone else’s mom.

Bonds will occasionally outperform the stock market in the short run, but over the long haul, stocks still tend to come out on top. So don’t lose faith in your equities, says Money Magazine’s Walter Updegrave.

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Question: The conventional wisdom is that stocks should outperform bonds over the long haul. But over the past 10 years, Vanguard’s Total Bond Market Index fund has had a slightly higher return than Vanguard’s Total Stock Market Index fund with a lot less volatility. Have fundamentals in the market changed such that stocks no longer offer a premium return? –David Poston

Answer: You hear the mantra repeated so often - stocks beat bonds over the long term - that it’s become an absolute truth for many investors.

But while it may be comforting to believe there is at least one completely reliable standard you can always count on in an investing world rife with uncertainty, the fact is that virtually all truisms have exceptions and qualifications

One big qualifier to the “stocks trump bonds” rule is the length of time you expect your money to remain invested. Or, to put it in terms former president Bill Clinton might use, it depends on what the meaning of “long term” is.

If your idea of long-term investing is ten years, history shows that while stocks usually excel over that period of time, it’s not unprecedented for bonds to sometimes come out on top. Indeed, if you go to the bible of investment performance data - Ibbotson Associates’ “Stocks, Bonds, Bills and Inflation Yearbook” - and compare returns for the 73 rolling 10-year periods starting with 1926-1935 and continuing through 1998-2007, you’ll find that bonds outgained stocks in 11, or 15%, of those periods.

The usual reason that bonds manage to buck the trend every now and then is that stocks occasionally become overvalued. That’s exactly what happened back in the late ’90s. Giddy investors pushed stock prices to bloated levels, the market crashed and money invested in stocks at or near peak prices ended up earning subpar long-term returns. Thus, it was the irrational exuberance of the go-go ’90s that resulted in bonds beating stocks over the past 10 years.

But given enough time, stocks have historically shown that they’ve been able to bounce back, even from extremely bloated prices and eventually overtake bonds. So, for example, if you extend your notion of long term to 20 years, there’s only one of 63 rolling 20-year periods since 1926 in which bonds beat stocks: 1929-1948, the 20 years after the Crash of ‘29 that ushered in the Great Depression. And if you extend that time frame by just one year to 1949, stocks come out ahead.

I don’t want to suggest that stocks’ superiority is guaranteed (although as I pointed out in an earlier column, there are rational reasons to expect stocks will outperform). But I do think that history makes a compelling case that even if you buy stocks at the worst times, you’ve still got a chance of earning higher returns than in bonds if you hold on long enough. Of course, that doesn’t provide much comfort if you need the money and your stock investments are still faring poorly before “long enough” arrives.

As to whether fundamentals have changed so that stocks are no longer likely to deliver higher returns in the future, I don’t see anything that suggests that’s the case. Yes, we’re definitely in a challenging period right now. We’ve lurched from a stock-market bubble to a real estate bubble and now we’re mired in a credit crunch.

But these sorts of convulsions and crises, while unsettling, are a normal part of the ebb and flow of economies and markets. We’ve been through such episodes before and we’ll go through them again. If anything, I’d argue that all this fear and anxiety makes it less likely that stocks are poised for long-term inferior returns. I’m more wary of stocks when investors can’t shovel money into them fast enough because they’re convinced stocks are a sure thing. That’s when stock prices are most apt to become gaseous and their future return prospects dimmest.

It would be wonderful if we knew ahead of time when stocks are going to generate killer returns and when they’re going to be dogs. But until someone finds a way of developing this sort of clairvoyance, revving up a tool like our Asset Allocator and then investing in a mix of stocks and bonds that reflects how long your money will be invested and your tolerance for risk is the best way I know to deal with the uncertainty inherent in investing.

Finances can be a touchy subject among family members. If you try to offer help, proceed with caution, says Money Magazine’s Walter Updegrave.

Question: My 53-year-old unemployed sister has recently received a small amount of money, probably $5,000 to $10,000. She wants to know how to invest it, but she finds financial matters confusing. I’ve tried to help her before, but like many people who are waiting for the big lottery win, she seems to lack the discipline to manage money effectively. I want to help her, but I struggle advising her and other family members because of the huge gap between my financial status and theirs. Is there some wise advice I can give to someone in her circumstances? –Ken, Colorado

Answer: Your sister isn’t the only one who needs to reconsider how she’s dealing with her shaky financial situation. You do too.

I’m sure it’s frustrating that financial concepts that are so self-evident to you - spend less than you earn and then invest sensibly to build wealth for the future - don’t seem to take with her. But having grown up in a family that struggled financially, I can tell you that it’s no easy task to apply these ideas to the reality of your life when you’re having a hard time just scraping by day to day.

You’ve got to realize that helping your sister become more financially secure isn’t just a matter of imparting financial wisdom. If you want to help her change her behavior and improve her situation, you’re also going to have to be patient and sensitive to what she’s going through.

So with that in mind, what sorts of things should you be doing to help out your sibling financially?

Let’s start with her windfall. If after talking to your sister you think there’s a realistic chance that she’ll be able to invest some of this money for the long-term, then you should help her get it into an investment that requires very little attention on her part, most likely an asset allocation or target-date retirement fund. This way she gets a fully diversified portfolio with no effort on her part. You can find asset allocation funds by typing asset allocation into the Quotes box at Morningstar.com. For a target-date retirement fund, check out our Money 70 list of recommended mutual funds.

But given your sister’s precarious financial situation, I think there’s a good chance she won’t be able to take the long-term approach with this money. I suspect she’ll have to draw on it fairly regularly for any number of reasons. If that’s the case, then she probably should have all or nearly all of it in an investment that offers security of principal and relatively easy access.

Normally, I’d say a money-market fund would fit the bill, but you don’t want to make it too easy for her to get at this money. So you might recommend that your sister put a portion of her windfall in a money-market fund and spread the rest among CDs with maturities ranging from six months to two years. This way she can get to the CD money if she really needs it, but the prospect of being docked for an early-withdrawal penalty may make her less apt to raid the CDs for anything less than a true emergency. And if it turns out your sister does need some of her CD funds, then at least dividing the money among several CDs instead of putting it all in one would save her from having to pay the prepayment penalty on her entire stash.

Without being too pushy, you should try to help your sister set up these accounts. Otherwise, it might not get done. Earning a high return isn’t your top priority here; making sure the money makes it into the accounts is. But you and your sister can assure that she at least gets a competitive return on this money if the two of you sit down together and check out CD rates here and money-market fund yields here.

After your sister finds work again, try to encourage her to begin saving on her own so she’ll have something to support her in retirement besides Social Security. If her next job has a 401(k) plan - and you can suggest that she look for one that does - try to persuade her to contribute at least enough to get any matching funds her employer may offer. If she doesn’t have access to a 401(k), then recommend that she contribute to an IRA.

Depending on how much she earns and how much she contributes to a 401(k) and/or IRA, she may be able to qualify for a Retirement Savings Contribution tax credit, which would lower her tax bill and make it more palatable for her to save. (For details on this credit, which maxes out at $1,000 for individuals and $2,000 for married couples, click here.)

Again, I think the chances of her pulling this off will increase dramatically if you actually guide her through the process of opening the accounts and help her choose the investments. But you also have to consider the possibility that you simply may not be the right person to help your sister. She may feel uncomfortable or embarrassed at being in the position of having to take financial advice from a sibling.

If that’s the case, you may be better off buying her some time with a financial planner who can go over her finances with her and get her started on a savings and investment plan. While most planners prefer long-term relationships, there are some who will work on an hourly or project basis, which would probably be more appropriate in your sister’s case. You can contact planners willing to work on that basis by clicking here.

There’s no guarantee that any of these suggestions - or for that matter, any other strategies - will work. But I don’t think it’s a waste of time to try. If you succeed, your sister will be better off financially. If you don’t manage to help her improve her financial situation, I think you’ll both still feel better than if you hadn’t tried at all.

The rules of converting to a Roth IRA may be complicated, but staying on top of the latest changes could boost your nest egg, says Money Magazine’s Walter Updegrave.

NEW YORK (Money) — Question: It’s my understanding that starting in 2010 the rule that prohibits you from converting from a traditional IRA to a Roth IRA (for modified adjusted gross incomes over $100,000) will be eliminated. If that’s the case, can I convert all types of IRAs - deductible IRAs, nondeductible and even rollover IRAs that contain money moved from a 401(k) plan? How long do I have to do this? Do the new conversion rules expire at some point? –Hussam, Bergenfield, New Jersey

Answer: A gold star to you for keeping on top of changes to the Roth conversion rules! As part of the Tax Increase Prevention and Reconciliation Act that became law in May of 2006, Congress eliminated the restriction you mentioned for converting to a Roth IRA, (although until 2010 the current income eligibility rules still apply).

And other than an IRA inherited from someone besides your spouse, any type of IRA can be converted to a Roth, whether it’s a traditional deductible, nondeductible, a rollover IRA or, for that matter, even a SEP or SIMPLE IRA (although unless you’re 59 1/2 or older, you must have had your SIMPLE IRA more than two years).

As I noted in Money Magazine shortly after this provision passed, doing a Roth can be a pretty sweet deal. So as far as I’m concerned, anything that makes the conversion option available to more people is, as Martha might say, a good thing.

In fact, this legislation also offers two other goodies. First, if you convert in 2010, the income you must pay tax on will be split equally between 2011 and 2012, which defers the tax hit. If you think you’ll be in a lower tax bracket in 2010 than later on, however, you can elect to recognize the income that year.

Second, while Congress kept the rule that prevents you from making annual contributions to a Roth if your income exceeds certain thresholds, the new Roth conversion rules give you an easy way around this restriction starting in 2010. Just contribute to a nondeductible IRA - which anyone with earned income can do - and then convert to a Roth. You can even get a head start on this end-run by contributing to a nondeductible IRA before 2010 and then converting when the new rules go into effect that year.

If you do decide to convert - whenever that may be - you should be aware of one aspect of the rules that can trip you up if you’ve contributed to a nondeductible IRA or rolled an after-tax 401(k) into an IRA rollover.

Here’s an example.

Let’s say you have two IRAs with a total value of $50,000. One is a traditional IRA that has a $25,000 balance consisting of both deductible contributions and earnings on those contributions. The other is a nondeductible IRA that includes $20,000 of nondeductible, or after-tax, contributions and $5,000 of earnings.

If you decide to convert all your IRA money, then $20,000 (the amount you contributed on a nondeductible, or after-tax, basis) would not be taxable since you’ve already paid the tax on that money. But the remaining $30,000 (your deductible contributions plus the investment gains in both accounts) would be taxable since Uncle Sam has yet to get his share of that money.

But suppose you wanted to convert only a portion of your IRA funds, say, half of your $50,000. In that case, you might say to yourself, gee, I’ll leave the deductible IRA with its $30,000 of taxable money alone and convert the nondeductible IRA, so I’ll owe tax only on the $5,000 of investment earnings in the nondeductible IRA account.

Alas, you can’t cherry pick IRA funds this way. Instead, when doing a conversion you must consider all of your non-Roth IRAs - deductible, nondeductible, rollovers, even SEP and SIMPLE IRAs - as one big pie that can contain both taxable and nontaxable money.

In the scenario above, your already-taxed nondeductible contributions of $20,000 account for 40% of your total, while the $30,000 of yet-to-be-taxed deductible contributions and investment earnings represent 60% of your $50,000 IRA pie.

Whether you convert the entire $50,000 or just a slice of it, 60% is considered taxable income. So if you choose to convert a $25,000 slice of your $50,000 IRA pie, then $15,000 (60% of $25,000) is taxable. It doesn’t matter where you carve the slice from. Each slice of the pie has the same mix of taxable and nontaxable money as the whole.

If you’ve made nondeductible, or after-tax, contributions to an IRA, IRS form 8606 will take you through the gory details of calculating the taxable vs. nontaxable portion of your conversion, although you’ll also have to plow through the instruction booklet to make sense of the form.

As for whether there’s a time limit to new conversion rules, well, Congress didn’t include any expiration date. And since looser restrictions are likely to lead to more Roth conversions and, hence, more tax dollars in the near term for the boys and girls down in DC to play with, it would seem unlikely that our legislators would turn off the revenue spigot anytime soon by tightening the restrictions again.

But I don’t consider any tax rules permanent. Given Congress’s predilection for re-writing the tax code, I’d say the word permanent doesn’t apply to taxes at all (except in the sense that taxes of some type will probably always be with us).

So while you certainly don’t want to rush into a conversion - in fact, it’s a good idea to check out a calculator to see if it makes sense for you - I don’t see a reason to dawdle if you think a conversion is appropriate. It would be a shame to miss out if Congress changes its mind again.

With the ‘R’ word looming, a lot of investors are ready to jump ship to shield their retirement. Look before you leap, says Money Magazine’s Walter Updegrave.

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Question: I’ve been contributing 15% of my salary and bonus to my 401(k), as well as investing in a Roth IRA and other accounts. With everyone so sure we’re headed for a recession, I’m wondering whether I should move my money into more stable investments to avoid losses as some people suggest or whether I should just view this time as an opportunity to buy in at cheaper prices. What do you think? –Sandy R., Los Angeles, Calif.

Answer: The only sound that’s louder and more persistent than the parade of recession warnings out there is the clamor of pundits spouting strategies that will supposedly safeguard your retirement in the face of a downturn.

Some advocate waiting out the turbulence in cash equivalents like money funds or CDs. Others suggest investing in foreign markets, and still others recommend moving into market sectors that have historically held up well in recessions past.

I call this paper-mache advice. It looks solid at first glance, but doesn’t hold up to closer examination. The main problem is that these recommendations assume you can move your retirement money in and out of different assets with impeccable timing. In reality, you run the risk of selling at a low point and buying in at inflated prices. Throw in the cost of trading, and you can seriously erode your long-term returns.

So what can you do to prevent your nest egg from getting totally scrambled?

Below, I offer strategies for four different stages of retirement planning - early career, mid-career, late career and already retired - that will get you through a recession and a down market while still allowing you to prosper in the longer-term.

But first I want to mention one thing that almost everyone should be doing in an iffy economic climate like this. While it’s always a good idea to have a cash reserve of three to six months’ living expenses to fall back on, it’s particularly crucial to have such a cushion now. Recessions dramatically heighten the risk of job loss. During the last recession of March to November 2001, for example, the United States lost 1.6 million jobs. Having an emergency reserve will reduce the chance that you’ll have to raid your IRA or other accounts and disrupt your nest egg’s growth if you’re laid off.

As an added precaution, you should also have a home equity or other line of credit to give you another resource to draw on if things get really ugly and your cash reserve runs dry. If you don’t already have a line of credit, open one now, as you may not be able to get it if you become unemployed.

Now let’s get to those strategies for different stages of retirement.

Early career

Frankly, your main focus at this point in your planning should be making sure you’re plowing enough money into your 401(k) and other retirement accounts, not following the ups and downs of the economy and the markets. You can quickly tell whether you’re stashing away enough by going to our What You Need To Save calculator. Just plug in your age, annual salary and the amount you already have saved, and bingo! You’ll get an estimate of the percentage of salary you need to put away to retire at age 65.

As for your investing strategy, your goal is to shoot almost exclusively for long-term capital growth. With retirement still 30 or 40 years away, you have plenty of time to recover from temporary losses, so there’s little sense in getting all worked up about them. Indeed, anyone who invested in a diversified portfolio of stocks at the market peak in January 1973 right before a bear market drove stock prices down nearly 50%, still earned an annualized 10.6% over the next 30 years.

I’m not saying you’ll see a repeat of those results. But stocks still offer your surest shot at long-term growth. So when you’re in your 20s and 30s, the best strategy is to devote about 90% of your retirement assets to solid low-cost mutual funds like the ones in our Money 70 and, except to rebalance your portfolio annually, stick to that strategy whatever the market is doing. If you’re not up to creating your own portfolio, buy a target-date retirement fund with a date that roughly corresponds to the year you plan to retire, say, 2040 or 2050.

Mid-career

After you’ve got a few years on the job, you probably have enough money sitting in 401(k)s and IRAs that a market downturn would trigger a big enough dollar loss to get your attention. Which means you could be even more prone to abandon your long-term strategy to avoid short-term pain.

Resist that urge. With 20 or more years to go until retirement, you still have lots of time to make up for any setbacks. So long-term growth of your savings is still your overriding investment goal, although with fewer years left in your career you’ll want to be slightly less aggressive than you were starting out. A mix of roughly 70% to 75% of your retirement savings in stocks and 25% to 30% bonds is generally appropriate if you’re in your 40s and early 50s.

You’ll also want to be sure you’re continuing to sock away enough bucks in your retirement accounts. While our What You Need To Save calculator can give you a quick sense of whether you’re on track, at this point you probably have enough money in enough different accounts that you’re better off doing a more comprehensive analysis with our Retirement Planner. By running a couple of different scenarios using different assumptions about your savings rate and investment strategy, you can get a much better handle on whether you’re on track and, if not, what you must do to make progress.

Late career

Now you’re hitting the home stretch with about 10 years to go until retirement. Now that the kids are leaving the nest and you’re at or near your peak earning years, this is an excellent time to really rev up your savings effort - including making catch-up contributions to your 401(k) and IRA once you hit 50.

On the investment front, however, you face a delicate balancing act. You still need capital growth because you’re investing not just until you reach retirement, but for the years you’ll spend in retirement too. But you also need to protect the money you’ve accumulated so far.

The way to balance those needs isn’t to try to time moves in and out of cash, bonds or defensive sectors. Rather, it’s to settle on a mix of stocks and bonds that can give you a decent shot at long-term growth while providing enough shelter so that you’re not hammered when the market goes south. Generally, that means keeping roughly 60% to 65% of your portfolio in stocks and the rest in bonds.

You also need to begin thinking not just about growing and protecting your nest egg, but gauging how much retirement income it can realistically generate. By plugging in such information as your account balances, how much you’re saving, your estimated Social Security benefits and your investment mix, an online tool such as Fidelity’s Retirement Income Planner can help you estimate how much income you can reasonably count on in retirement. (The tool is free, although non-Fido customers must register.)

Already retired

This is the time when you really have to be careful about market slumps. That’s because the combination of investment losses and pulling money out of your retirement accounts for living expenses can so depress the value of your portfolio that it may not be able to recover sufficiently even when the market rebounds.

There are two ways to protect yourself against the risk of going through your money too soon. One is to scale back your stock holdings enough to allow for modest growth yet limit the damage from a slumping market. At age 65, a reasonable guide is to invest roughly half of your retirement accounts in stock funds and the remainder in bonds and cash. As you age, you should gradually scale back the amount devoted to equities, until it reaches 20% to 30% of your portfolio when you’re in your ‘80s.

The second way to prevent a sinking market from sinking your retirement plans is to carefully manage withdrawals from your savings. If you want your nest egg to support you for 30 years to longer, you should draw no more than 4% to 4.5% or so of your account value initially and then increase the dollar amount of that withdrawal annually for inflation. This will give you an 85% to 90% chance that your money will last 30 or more years.

This is an estimate, though, not a guarantee. The odds will be lower if you’re hit with several years of subpar returns or a market downturn early in retirement. If the markets deliver solid gains, however, you could actually end up with a portfolio larger after 30 years than the one you started out with. That may sound like a big plus. But it could also mean that your desire for security prevented you from enjoying retirement as much as you might have.

So you need to be flexible. If the markets head south early in retirement, you might want to pare back your withdrawals a bit. Conversely, if you see your portfolio’s value begin to balloon, you might be more generous to yourself. You can keep tabs on how long your portfolio might last by going to the T. Rowe Price Retirement Income Calculator.

Bottom line: The threat of a recession and a bear market wreaking havoc with your retirement plans can definitely be unnerving. But shifting assets around in a vain attempt to outguess the markets will likely create more problems that it will solve. A better approach is to create a sensible long-term plan along the lines I’ve outlined here and, aside from minor adjustments, stick to it. In the years after the crisis passes, you’ll be glad you did.

Target retirement funds aren’t for everyone, but they’re a good option for many people who don’t want the hassle of rebalancing their portfolio says Money Magazine’s Walter Updegrave.

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Question: I’ve been out of college two years and contribute enough to my 401(k) to get the full employer match. Currently, I’ve got 50% of my 401(k) money in large-cap funds, 20% in small- and mid-caps and 30% in international funds. I’m also planning to start saving an additional $200 a month in a Roth IRA. I’m considering going with a target-date fund but I’m leery of taking a cookie-cutter approach. What do you suggest? —A. B., Pennsylvania

Answer: First, let me congratulate you for getting off to such a great start with your retirement planning. By starting to save so early in your career, you’re dramatically increasing the odds that you’ll have a nest egg large enough to support you in comfort when you’re ready to call it a career.

But don’t just take my word for it. Go to our What You Need To Save calculator, plug in your age, salary and the amount you’ve already set aside for retirement, and you’ll get an estimate of what percentage of your salary you should be saving to be able to retire at 65. You can then compare that figure to what you’re actually doing to see if you’re on track.

You also appear to be doing a good job on the investment front. You’ve spread your money among foreign, large- and small-cap stock funds, which shows that, if nothing else, you’re avoiding the three costly investment errors I’ve written about previously that can undermine the growth of your 401(k).

That said, I notice that you don’t have any money in bond funds. You can certainly argue that an all-equity 401(k) is just fine for someone your age. After all, your retirement stash is going to be invested for decades. So why concern yourself with market drops that may seem scary now but will appear like tiny dips in retrospect? You might as well go for all the gusto you can, right?

Well, at the risk of sounding overly cautious, I think even youngsters like yourself should hedge your bets a bit by holding some bond funds. Although I expect stocks to deliver far higher returns than bonds over the next 40 or so years, there’s always the chance they won’t. And having even a small cushion in bonds may provide enough emotional comfort to prevent you from bailing out of stocks if the market takes a nosedive.

So I’d recommend you consider shaving a bit off your holdings in international, small- and mid-cap funds and building a stake of 10% to 15% of your assets in bonds.

Now, about that Roth IRA.

I could see you going either way with that account. You could create something very similar to your 401(k) portfolio in your Roth by investing in individual funds. Of course, you would have to do a bit of research into the funds before buying them, although you can make that task a lot easier by using our Money 70 list of recommended funds as a starting point. And you would also have to rebalance your portfolio each year so that the varying returns different funds earn don’t push your overall asset mix too far out of whack.

On the other hand, if you don’t feel like evaluating specific funds and doing the annual maintenance in your Roth, you could make things easy on yourself and just buy a target-retirement fund. You would get a ready-made mix of stocks and bonds appropriate for your age, and that mix would morph a bit more toward bonds as you near retirement. In short, you wouldn’t have to do any rebalancing with the Roth; the fund would do it for you. I’m sure you could do just fine with any number of the different target funds out there, but I’m partial to the very reasonably priced ones that made our Money 70 roster.

As for your concern about target funds being a cookie-cutter solution, well, they are in the sense that you’re not getting a blend of stocks and bonds tailored to your specific financial circumstances. Everyone in the fund gets the same asset mix.

But I don’t see that as a major shortcoming. For one thing, left to their own devices many people won’t come close to an appropriate asset allocation on their own. So if a target fund gets you a decent asset mix and a coherent long-term investment strategy, that’s for the good.

You may be able to get a better portfolio by going to an adviser, but on the other hand you may not - and either way you’ll pay an extra expense that many people, especially those just starting out, can’t afford.

Finally, I think going with a target fund can protect us from our worse impulses - namely, the urge to dart in and out of different sectors of the market, move from stocks into cash or bonds, buy into the hot fund du jour, etc. By putting your portfolio strategy on autopilot, I think you’re less likely to engage in self-defeating behavior.

Bottom line: if the ease of putting your Roth IRA money into a target fund appeals to you, I wouldn’t let the cookie-cutter criticism stop you. If you don’t think you’ll rebalance your 401(k) portfolio every year (and most people don’t), you might want to consider a target fund there too, if your plan offers one.

Target funds aren’t perfect. But for people who aren’t likely to do better on their own or don’t want to put in the effort, and people who can’t afford to pay an adviser or just don’t want to, target funds can be an excellent choice.

Do you have a question for the expert on another topic? Send an email. Or you can post a comment on this topic below.

If you have a lump sum of cash, don’t invest it little by little. Decide on an asset allocation and buy in all at once, says Money Magazine’s Walter Updegrave.

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Question: I’ve been putting money into a cash account each month for almost a year. I’m now ready to start investing this money - as well as my ongoing monthly contributions - in mutual funds. I want to capture lower prices and be able to buy more shares if the market moves lower. Do you have any advice on how I should make this transition from cash to mutual funds? –Ronnie Hall

Answer: This is the point where all fine upstanding financial journalists are supposed to extol the virtues of dollar-cost averaging - that is, tell you to transition into the market gradually by moving an equal portion of your stash each month from cash to mutual funds over the course of a year or so.

The supposed advantages of doing this is that you turn market volatility to your favor by automatically buying more shares when prices are low and fewer when prices are high.

But while dollar-cost averaging has risen to the level of accepted truth in many circles, it isn’t the magic bullet it’s made out to be. Indeed, some of the claims are simply an illusion.

So I’m going to break ranks here and recommend what I believe is a better strategy - namely, settle on a blend of stock and bond funds that makes sense given your risk tolerance and investing time frame, and invest it in that mix all at once.

But before I explain why I believe my approach is better, I want to be perfectly clear.

When I say I’m not an advocate of dollar-cost averaging, that doesn’t mean I’m against investing small amounts of money on a regular basis. That’s how most of us build a nest egg for retirement, making regular contributions via payroll deductions through 401(k)s or similar plans. This sort of systematic investing makes perfect sense, if for no other reason than it assures we save rather than spend the money.

But the concept behind dollar-cost averaging is different. The idea is that you have a lump sum that you could invest now, but you instead decide to invest gradually. And that’s the strategy I say doesn’t really hold water.

Forming a plan

To understand why, consider this scenario:

Let’s assume you have $60,000 to invest that’s been sitting in a money market fund or that you inherited from a relative or received as a job bonus. Before you invest a cent, the first thing you should do is ask yourself when you’re going to have to tap that investment. As I pointed out in a recent column, if you need the money within a couple of years, then you shouldn’t be investing it in stock or bond mutual funds at all. You should keep it in something secure, like a money-market fund or short-term CD.

But if you plan to invest longer term, you can afford to shoot for higher returns in mutual funds. The issue is, how much goes into stock funds and how much into bond funds? That’s a judgment call, but the longer the money will be invested and the more risk you’re willing to take, the more you can invest in stocks. You can easily get a recommended asset mix of stock and bond funds that takes your time horizon and appetite for risk into account by going to our Asset Allocator tool.

Assume that after checking out this tool, you decide that a portfolio of 60% stocks and 40% bonds gives you the right trade off of risk and return. The question then becomes, how do you go from $60,000 in cash to your 60-40 portfolio?

Well, if you believe in dollar-cost averaging, you would do so gradually. You might move $5,000 each month, investing $3,000 (or 60% of each monthly $5,000 chunk) in stock funds and $2,000 (40%) in bond funds. At the end of a year, your entire sixty grand would be invested in mutual funds.

Missing the target

But if you think about it, this approach doesn’t make sense. Over the course of the year, you would have actually been investing much more conservatively than you intended when you chose a 60-40 mix. The reason is that you’re holding on to so much cash, you’re virtually guaranteeing you won’t be at your 60-40 target mix for most of the year. By moving your money a little at a time, you’re actually undermining your investing strategy.

If, on the other hand, you do what I recommend - take your $60,000 and invest 60% in stock funds and 40% in bond funds (or whatever mix you choose) all at once - you’ll be invested exactly how you want to be from the very beginning. If you then do the same thing with any additional money you invest - and then rebalance your portfolio every year - you’ll maintain that same trade off between risk and reward.

I’m not guaranteeing that my method will lead to higher returns. But neither can the advocates of dollar-cost averaging. The returns you earn will depend on the financial markets. If the stock market surges, then putting your money in stock funds immediately will generate a higher return than investing in dribs and drabs. If the market heads south, the opposite would be true.

Hedging against uncertainty

The rub is that we don’t know what the financial markets will do. But that’s the whole point of creating a diversified mix of stock and bond funds. That’s the smart way to hedge against uncertainty. Once you’ve done that, there’s really no need to dollar-cost average. In fact, it’s counterproductive.

That said, I suppose there is one instance in which I could see dollar-cost averaging playing a role. If you’re so nervous about investing in stock and bond funds that you simply can’t do it without tiptoeing in, then you’re better off going in gradually than not investing at all.

Otherwise, though, the next time a market downturn triggers the obligatory chorus of praise for dollar-cost averaging, just tune it out.