Many investors rely on online retirement calculators to provide them with an idea of how much they’ll need for retirement.

Typical calculators focus on income, figuring that, in retirement, clients will need some percentage of current income. When clients plug in their information — how much they earn, how much they’ve saved, what they expect to earn and when they hope to retire — the calculator quickly estimates how much they’ll need to save to reach that goal.

The trouble is that these online tools often yield conflicting and sometimes even misleading answers, says York University’s Moshe Milevsky, in a paper entitled “Will the True Monte Carlo Number Please Stand Up?”

Milevsky found that even those calculators that use Monte Carlo simulations vary widely, largely because of the number of calculations used and the underlying assumptions. One solution, he suggests, is to develop criteria so that all retirement-income calculators generate similar results, within a statistically tolerable margin of error.

To counteract the confusion, Yale professor Roger Ibbotson has come up with a much simpler way for investors to determine their ideal savings rate. Along with colleagues at research firm Ibbotson Associates and two financial planners from New Haven, Conn.-based Kreitler Associates, Ibbotson outlined his approach in a study entitled “National Savings Rate Guidelines for Individuals,” which appeared last year in the Journal of Financial Planning.

Rather than come up with individual analyses, the researchers create a chart matrix that allows individuals to look up their ideal savings rates based on their ages, incomes and accumulated savings for retirement — in other words, a snapshot of how much farther they have to go to reach their goal.

The researchers use Monte Carlo simulations to generate savings rates and nest eggs that have a 90% probability of success, suggesting that those who follow the guidelines should not run significant risk of running out of money.

Although the study’s authors also look at a 60% income-replacement ratio, they assume that most people will need to replace 80% of their pre-retirement income, defined as gross salary minus the amount they’ve been putting aside for retirement. This allows investors to factor in changing lifestyle needs and is preferable to using gross income which often leads to oversaving, the researchers maintain.

The researchers also posit that pre-retirement earnings and post-retirement cash flow will grow in line with inflation at 2.5% annually, and that upon retirement, clients will buy inflation-indexed annuities to create a lifetime guaranteed income and earn full Social Security benefits at age 65.

The portfolios they use in their research resemble retail life–cycle or target-date funds, which become increasingly conservative as retirement approaches. Ibbottson estimates rates of return will be 11% for stocks and 4.5% for bonds.

With these assumptions, the study comes up with savings rate guidelines for individuals from 25 to 60 and annual income levels from $20,000 to $120,000. The resulting charts reveal that the percentage of income an individual must save starting at age 45 is typically more than twice what it would have been at age 25. Waiting until age 55 means that the percentage is often triple what it would have been 30 years earlier.

The authors suggest the following savings guidelines.

> individuals starting early, with income of $40,000 a year, need to save 8.2%. They can save 0.78% less for each $10,000 already in their portfolio.

> individuals starting at age 40 with income of $60,000 a year need to save 17.6%; they can put aside 0.57% less for each $10,000 in their portfolio.

> a 55-year-old earning $60,000 a year needs to save 32.6%, minus 0.43% for each $10,000 squirrelled away. IE