(MONEY Magazine) – Welcome to MONEY's lifelong guide to funding your dream retirement. At each of the three stages of your life--mid-career, pre-retirement and retirement--you need to grasp four shifting factors:

YOUR GOAL As you draw closer to retirement, your investing aim will evolve gradually from building wealth as fast as possible to preserving what you have.

THE CHALLENGE As your goals change, so will the risks you face. A market crash, for example, is a far more serious matter right before retirement than when you're young.

YOUR STRATEGY Traditional retirement investing advice tends to be too conservative for 21st-century realities. This guide corrects that.

YOUR INVESTING TOOLS No investing style fits everyone. At each stage, then, this guide offers three different ways to fill your retirement portfolio:

• Index funds These low-cost funds reliably perform better than the average fund. There's no risk they'll wildly underperform the market--but they won't knock your socks off either.

• Actively managed funds If you want a shot at even better returns, go with the actively managed choices that we've culled from the MONEY 50, our list of recommended funds.

• Target-date funds If you don't want to pick funds, this choice makes sense. Each target fund is a fully diversified portfolio, continually reset at a risk level appropriate for someone planning to retire in a given year.

Stage 1: Mid-Career

GOAL Maximize Wealth

When you're still more than 10 years from retirement, you should focus your attention on bulking up your savings. Aim to set aside at least 10% of your gross salary--though if you're just getting started, you may need to save more (see "How Much to Save," below). At this stage, you have time to make up for market downturns, so you should take reasonable risks to get higher returns.

CHALLENGE Keep Returns High

There will be market setbacks, but don't let them divert you from an aggressive strategy that relies heavily on stocks. If you play it too safe this early in your life, you may find yourself at the doorstep of retirement with too little in savings.

STRATEGY Go for Growth

In this phase, it's pedal to the metal all the way. True, keeping 86% of your retirement money in stock funds has its risks--in 1974, such a portfolio would have dropped 24%. But a computer analysis of thousands of different market scenarios suggests that putting 86% in a mix of stock funds and 14% in a mix of bond funds would give you an even chance at double-digit gains over the next 10 years.

HOW MUCH TO SAVE

HOW TO INVEST

Stocks 86% Bonds 14%

WHAT TO EXPECT

PAST How a portfolio like this would have performed since 1950

Annualized return 12% Best year (1954) 45 Worst year (1974) -24

PROJECTED ANNUAL RETURN What this portfolio could return over the next 10 years based on computerized forecasts

75% chance of earning at least 6.6% 50% chance of earning at least 10.1 25% chance of earning at least 13.9

INVESTING TOOLS The High-Growth Portfolio

Build a mix of index funds or actively managed funds from the six categories below. Or, easier still, do it all with one target-date fund.

• TARGET-DATE FUNDS Each of these single funds roughly follows the broad asset mix recommended above.

T. Rowe Price Retirement 2025 (TRRHX) 638-5660 Vanguard Target Retirement 2035 (VTTHX) 851-4999 Fidelity Freedom 2040 (FFFFX) 343-3548

Smart Move

Start an Automatic Investing Plan Direct a mutual fund company to transfer, say, $100 or more from your checking account to a fund each month. That way you can't procrastinate or "forget" to save, and your retirement fund will grow.

Stage 2: Pre-Retirement

GOAL Keep the Ball Rolling

By the time you hit your late fifties and early sixties, you're likely to have accumulated a sizable stash. Still, your portfolio needs to keep growing before you can be confident of a comfortable retirement. This is also the time to re-assess your situation to see whether you really can afford to retire at the age you've planned or whether you should work a few years longer.

CHALLENGE Protect Your Assets

As your portfolio gains mass, it's going to be harder for you to bounce back from market setbacks. A 20% shrinkage in your nest egg seven years before your planned retirement, for example, could keep you in the work force an extra three years.

STRATEGY Cut Back on Stocks

At this stage, you have to strike a delicate balance between the need to keep earning solid returns and the imperative to guard against late-inning losses. Shrinking your stockholdings to 66% will help mitigate the damage a bear market could cause. (Even so, such a portfolio would have taken an 18% hit in 1974.) But this asset mix would still give you an even shot of beating 9% over 10 years.

HOW MUCH TO SAVE

HOW TO INVEST

Stocks 66% Bonds 34%

WHAT TO EXPECT

PAST How a portfolio like this would have performed since 1950

Annualized return 11% Best year (1954) 36 Worst year (1974) -18

PROJECTED ANNUAL RETURN What this portfolio could return over the next 10 years based on computerized forecasts

75% chance of earning at least 6.1% 50% chance of earning at least 9.0 25% chance of earning at least 12.1

INVESTING TOOLS The Boomer Mix

Build a mix of index funds or actively managed funds from the seven categories below. Or, easier still, do it all with one target-date fund.

• TARGET-DATE FUNDS Each of these single funds roughly follows the broad asset mix recommended above.

T. Rowe Price Retirement 2015 (TRRGX) 638-5660 Vanguard Target Retirement 2025 (VTTVX) 851-4999 Fidelity Freedom 2020 (FFFDX) 343-3548

Smart Move

Do the Catch-Up If you're 50 or older, you can stash an extra $5,000 annually in your 401(k) starting next year and an additional $1,000 in an IRA. Over 12 years an extra $6,000 a year could add $123,000 or so to your retirement savings.

Stage 3: Retirement

GOAL Make Your Money Last

As you shift from saving to spending retirement money, your main task is to make sure your savings don't run out too soon. Safety is more important than ever, but your portfolio still needs to earn a decent return to battle inflation.

CHALLENGE Beat Inflation

Over the course of a retirement that can last decades, even modest inflation can hurt badly. A fixed retirement income of $50,000 would fall to only $37,200 in purchasing power after 10 years of 3% inflation--and to just $27,700 after 20 years.

How the value of $50,000 shrinks with inflation $50,000

STRATEGY Monitor Spending

To increase the odds that your assets will last the rest of your life, you must first hold annual withdrawals to 4% to 5% of your portfolio, especially early in retirement; second, resist the urge to load up on bonds. In your sixties, you should keep 55% or so of your assets in stocks and scale back to about 30% in your eighties. Since 1950, a 55% stock-45% bond mix would have earned 10% a year.

HOW MUCH TO WITHDRAW

HOW TO INVEST

Stocks 55% Bonds 45%

WHAT TO EXPECT

PAST How a portfolio like this would have performed since 1950

Annualized return 10% Best year (1985) 31 Worst year (1974) -15

PROJECTED ANNUAL RETURN What this portfolio could return over the next 10 years based on computerized forecasts

75% chance of earning at least 5.8% 50% chance of earning at least 8.3 25% chance of earning at least 11.0

INVESTING TOOLS The Preservation Portfolio

Build a mix of index funds or actively managed funds from the seven categories below. Or, easier still, do it all with one target-date fund.

• TARGET-DATE FUNDS Each of these single funds roughly follows the broad asset mix recommended above.

T. Rowe Price Retirement 2005 (TRRFX) 638-5660 Vanguard Target Retirement 2015 (VTXVX) 851-4999 Fidelity Freedom 2015 (FFVFX) 343-3548

Smart Move

Periodically Revisit Your Withdrawal Rate The amount you can safely withdraw may change as you age and your savings grow or shrink. To re-assess your withdrawal rate, go to the Retirement Income Calculator at trowe.com.

NOTES: [1] Assumes savings at age 40 equal to 1.5 times annual salary, yearly contributions to retirement accounts of 12% of salary and moderate returns. Does not include Social Security, pension or investment income. [2] Percentage based on very high odds of achieving 70% of pre-retirement income, half from investments; money is invested as in model portfolio. [3] Actively managed; index fund not available in this category. [4] Assumes an investment return of 8%. [5] Assumes initial withdrawal is increased for 3% inflation each year. SOURCES: Ibbotson Associates, LTSave, MONEY research, T. Rowe Price, the funds.