Millions of Americans emerged from the ’90s believing their investment portfolios would provide them enough to live on through decades of retirement. Now they’re not so sure, thanks to the stock market troubles of the past two years.

How do you figure the odds that your investing strategy will give you enough? T. Rowe Price, the Baltimore mutual fund company, has a nifty calculator for this on its Web site, www.troweprice.com (under Investment Tools).

	www.troweprice.com

The standard approach to the problem goes like this: Estimate your cost of living in retirement, adjust for inflation and figure how much will be financed by dependable sources such as Social Security and a pension.

To see if your investments will make up for any shortfall, look at how much you have invested now, figure how much you can invest each year, estimate your average annual investment return and how long you’ll live.

Obviously, all this involves an awful lot of assumptions and some or all are likely to prove wrong.

Among the biggest problems is how to forecast investment return. Many planners, for instance, assume an 8 percent average annual return for a portfolio that emphasizes stocks prior to retirement. Then they might assume a safer portfolio with more bonds that would return 6 percent a year after retirement begins.

Given that stocks returned about 10 percent a year, on average, in the 20th century, this seems conservative. But is it?

In fact, even if you achieve those long-term averages, your nest egg could fall short if you are hit by a severe downturn along the way, especially if it comes during retirement, when you’re taking money out instead of putting in.

Learn from examples

T. Rowe Price provides an example of a $250,000 portfolio held by a person who retired in 1969. Sixty percent of the portfolio was in S&P 500 stocks, 30 percent in intermediate U.S. government bonds and 10 percent in 30-day Treasury bills.

Over the next 30 years, the investor could have enjoyed average annual returns of 11.71 percent, given the market’s actual performance from 1969 through 1998. That should have allowed this person to start withdrawing $20,000 in 1969, and to increase the withdrawals by 3 percentage points a year to keep up with inflation. After 30 years, the portfolio should have grown to more than $400,000.

But it wouldn’t have turned turn out that way. Four years after the withdrawals began, the market plummeted. By continuing to make withdrawals from the smaller account, the investor depleted the account in 1981. Hence, he missed out on the boom of the ’80s and ’90s which was needed to make that long-term average return of nearly 12 percent.

Adjusting for change

To take such events into account, T. Rowe offers its Retirement Income Calculator. It looks at 500 potential market scenarios involving various combinations of ups and downs, then counts the number that enable the investor to meet his or her goals. If 350 outcomes leave the investor with enough money for life, the investing strategy has a 70 percent chance of success, for example.

Suppose you expect to retire at 65 with a $1 million retirement portfolio, and that you think you’ll live to 95. What are your prospects of drawing $3,000 per month from the portfolio for the rest of your life, and continually increasing that for inflation?

According to the calculator, you’d have a 99 percent chance of being able to withdraw $2,800 per month for life and a 90 percent chance of withdrawing $3,200. But if you wanted to withdraw $4,000, your chances of success for life would be only fifty-fifty.

To try a different approach, you can adjust any or all of seven factors plugged into the calculator, including things such as the number of years you expect to live and the way your portfolio is divided among stocks, bonds and cash.

The calculator isn’t foolproof, of course, since no one knows how the financial markets will behave.

But it’s well worth playing with, if only to see how your plans must leave a large margin for error.