In the first part of this article two weeks ago, I reviewed the beginning of the process for determining the amount of investment capital necessary to create sufficient retirement income to support the lifestyle you desire when your working days are over.

The process is not complicated, but should be calculated as opposed to guessing. First, determine how much income would afford you the desired lifestyle in retirement. For most, according to surveys, this is about 70 to 80 percent of their pre-retirement income. Then subtract any guaranteed sources of income you will receive in the form of pensions and Social Security. The difference is what you will need to generate from your investment portfolio.

This is where the variables and unknowns have to be accounted for, with at least some educated guesses. For example, we won't know what the rate of return on our portfolio will be over the course of a 20- to 30-year retirement unless we were to put our entire portfolio in a guaranteed investment like a government bond or annuity. These guaranteed investments generally provide lower returns than may be obtained over time in other investments like stocks or real estate.

The other variable is our mortality. Predicting the time of our passing is truly guesswork. However, for planning purposes we can use certain information to provide some confidence in the approximation of life expectancy.

How long did your parents survive? Perhaps they are still alive as you approach retirement, which may bode well for you to have a long life. Do you have any health conditions which may reasonably be assumed to shorten your life expectancy? Actuarial data shows that more than half of those who survive to age 65 will live to age 85 or beyond.

With 65 being a common retirement age, we can then see that most retirees should view their retirement as a new career that may well last 20 or more years. For the portion of our retirement income that will be generated from the investment plan, we can now see that we should not spend too aggressively and expect our investment nest egg to survive a 20- to 30-year retirement. In addition, for many, leaving a legacy gift of inherited funds to children or select charities may be a priority.

If we knew we would pass away in exactly 10 years, we could just spend 10 percent of our capital each year and live stress free. But longer life expectancies, the trend toward retirees being more active with travel and fitness well into our 70s and even 80s, along with the desire to leave a financial legacy, all create stress on the investment plan.

We now come to the concept of the safe withdrawal rate. The safe withdrawal rate is defined as the percentage of the investment portfolio you can withdraw each year and have the portfolio survive longer than you. Generally, we use a goal of the portfolio lasting 30 years or more to accommodate the mid-60s retirement age and the good fortune of a long, and hopefully healthy, life into your 90s.

Once we know the safe withdrawal rate and the amount of portfolio income needed to support our desired retirement lifestyle, we can calculate the size of the investment pool needed and use that as a goal for planning in our working years.

In my next article here in the Sun on July 29 we will review research on the what the safe withdrawal rate number is and show an example of how to calculate the investment portfolio needed to produce the desired level of income with a high level of certainty that the portfolio will survive our lifetime.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.