30-10-4 Formula key to Retirement Success

Sometimes simple trumps sophisticated. If you've got the time and interest (or a financial advisor) to fine tune your retirement planning using myriad strategies and theories, that's all good. But it's not entirely necessary. Nail these three simple numbers and your retirement will be in fine shape:

30: That's the number of years you need to plan to live once you retire. . A 65-year old male today can expect to live an average of 17 more years; a 65-year old female nearly 20 years. Note: those are just the averages. Half will live longer. In fact, about 20 percent of today's 65 year old men and 30 percent of women have a life expectancy to at least age 90.

The upshot: Your retirement could be nearly as long (or longer) than your career. If that seems like a lot of pressure to put on your 401(k) and IRA to support you, then just stretch out your career for an extra year or two or three. Delaying your retirement just a few years does wonders for your retirement security.

10: The percent of your pre-tax income you should be saving for retirement. If you're in the vicinity of 40 years old and you've yet to get serious about retirement savings, 15 percent is more like it. Can't afford to set aside that much? Okay, but if you're in sync with the 95 percent of respondents to a recent Schwab survey who said they do not want to reduce their spending in retirement, how do you expect to pull that off? If you want to spend in retirement you have to save now. Boost your 401(k) contribution rate by 2 or 3 percentage points this year, and repeat as necessary in subsequent years to get to your target contribution rate. If you're among the few who bump up against the 401(k) annual contribution limit ($16,500 in 2010 if you're under 50; $22,000 if you're at least 50) a regular taxable account invested in ETFs or no load index funds will keep your current tax bill to a minimum.

4: A "safe" withdrawal rate in retirement. Keep your annual withdrawals in the vicinity of 4 percent -- adjusted annually for inflation -- and you will boost the odds that your money will outlast you. Set a withdrawal rate much higher than that and you run the risk of running out of money.

Plug those three numbers into your retirement calculator of choice to get a solid sense of where you're at today. No "playing" around with the calcs to make the numbers work in your favor. The test here is to use 30-10-4 to see if you are truly on track to a secure retirement.

Extra Credit
Two more numbers to ponder:

8: The annual percentage increase in your Social Security benefit if you delay your draw on Social Security past age 62. You can start receiving a benefit at age 62, but for every year you delay between 62 and 70 your benefit amount grows a guaranteed 8 percent. That can be a great help in closing any retirement income shortfall.

4: The other 4 percent central to retirement planning is the long-term annual average inflation rate. At 4 percent the purchasing power of your retirement savings will be cut in half over 20 years. That's an argument for keeping a chunk of your assets invested in stocks even once you retire. Yes, stocks are volatile, but they also hold out the prospect for inflation-beating gains over the long-term. And retirement planning is your longest-term project.