(MONEY Magazine) – Recently, a 28-year-old student in my personal-finance course at the University of California-Berkeley showed me a computerized retirement analysis proving that he could retire at the tender age of 45 by saving just 5% of his salary. How is such a wondrous feat possible? Simple. He assumed an 18% annual return on his investments. When I plugged in a less exuberant 10% gain, it turned out that he would have to save an impossible 62% of his income to realize his out-at-45 dream.

Fact is, even minor differences in the numbers you insert into a computer program for important variables like tax rates, inflation and your life expectancy can produce dramatically different retirement scenarios. To see what guidance software publishers offer about such critical assumptions, I reviewed two popular retirement planning programs (Vanguard Retirement Planner, $18, 800-950-1971; and Quicken Financial Planner, $39.99, 800-446-8848) and three leading personal-finance programs with retirement calculators (Quicken Deluxe, $45, 800-446-8848; Microsoft Money 97, $34.95, 800-426-9400; and Managing Your Money, $19.95, 800-288-6322).

My conclusion: All five have shortcomings that could lead your retirement planning astray. The Vanguard and Quicken retirement programs did the best job, offering basic tips on the tax rates and investment returns you should factor into your plan. Managing Your Money was the worst in my opinion. To assess your life expectancy, for example, you must go to the program's insurance section--a fact that's never disclosed in the retirement calculator.

What follows is my advice on making the right assumptions in four key areas of retirement planning:

--Inflation-adjusted investment returns. The growth in the purchasing power of your portfolio is driven by your so-called real rate of return--that is, the gains your investments earn minus the inflation rate. That's a key figure. Yet without any discussion, Quicken Deluxe and Microsoft Money 97 default to a 3% or 4% inflation and an 8% or 9% return. Managing Your Money leaves it to you to enter whatever annual percentage return and inflation rate you want.

In forecasting investment returns, base your projections on long-term historical averages, not on the stock market's extraordinary 60% run-up over the past two years. If you maintain a portfolio with, say, 70% stocks and 30% bonds, you should figure on annual returns of around 8%. Knock that figure down a percentage point or so if you own more bonds. You can ratchet it up a percentage point or two if virtually all your money is in equities and you plan to keep it that way, no matter what happens in the market.

As for inflation, I consider 3% a reasonable figure to use, since that's the U.S. average for this century. If you want to be especially cautious, however, you might prefer to go with 3.5% or even 4%.

--Your income tax rate. Most software automatically assumes a 28% federal tax rate and provides little help in factoring in your state's bite. Just ignore the figures the programs serve up. Instead, go to your most recent tax return, add up your total federal and state income tax payments, and divide that sum by your total income. The result is your average tax rate. Plug that figure into your program.

I advise against entering one tax rate for your working years and another, presumably lower, one for when you leave your job and your income drops. The reason: As retiring baby boomers put more pressure on the Social Security and Medicare budgets, chances are the federal government will raise tax rates. By applying your current average rate to your retirement years, you won't underestimate your tax burden.

--Your living expenses. Although you might get by with as little as 65% of your pre-retirement income if you own your home free and clear and don't have luxurious tastes, I generally recommend planning on 75%. Consider increasing that figure to, say, 85% if you will still be making mortgage or rent payments, or if you expect to do some traveling after you retire.

--Your life expectancy. The number of years you live after retiring has an enormous impact on how much you must save so you never run through your stash. Three of the programs I test-drove--Quicken Financial Planner, Vanguard Retirement Planner and Managing Your Money (again, only the insurance section)--let you estimate your life expectancy by factoring in two or more variables such as age, gender, health and whether you smoke. Quicken Financial Planner, for example, figures a nonsmoking woman will make it to age 89. Microsoft Money 97 and Quicken Deluxe simply assume you'll live to be 85.

These estimates may sound like ripe old ages, but the longer you live, the better your chances of seeing the far side of them. A 65-year-old man who doesn't smoke has up to a 40% chance of living to 90, for example, and as much as a 10% shot at cracking the century mark. My advice: Unless you have serious health problems, add five to 10 years to the life expectancy the program suggests. After all, what good is beating the actuaries' estimates if you don't have enough money left to make the most of your bonus years?

Author of Personal Finance for Dummies (IDG Books, $16.99), Eric Tyson is a financial counselor who teaches personal finance at the University of California-Berkeley.