One of the toughest decisions you'll have to make when you retire is how much to withdraw from your retirement assets on an annual basis. Take too much out and you may spend your later retirement years relying on the help of relatives or living a much lower lifestyle.

Your withdrawal amount can be calculated based on your life expectancy, your expected long-term rate of return, the expected inflation rate, and how much principal you want remaining at the end of your life. Guess wrong on any of those variable and you run the risk of depleting your assets too soon. But your life expectancy, rate of return, and inflation are difficult to predict over such a long time period. Keep these points in mind when making your calculations:

• Your life expectancy. While it is easy enough to find out your actuarial life expectancy, those life expectancies are only averages. Many people live longer than those tables indicate. How long close relatives have lived and how healthy you are can help you gauge your life expectancy. Just to be safe, you might want to add five or 10 years to your life expectancy. After all, you wouldn't want to run out of money at age 75 or 80, when you might not be able to return to work.
  
   
• Your rate of return. Expected rates of return are often derived from historical rates of return and your current investment allocation. Historical rates of return are an average of returns over a period of time. Returns may be better than that in some years and worse than that in other years. Even if you get the average return right, the pattern of those returns can have a dramatic impact on your portfolio. For instance, individuals who retired at the beginning of 2000 with most of their portfolio in stocks may have difficulty overcoming those declines.
  
   
• Expected inflation. While inflation has been relatively tame recently, that has not always been the case. Over the past 30 years, inflation has averaged 5 percent (Source: Bureau of Labor Statistics). Inflation can have a dramatic effect on the purchasing power of your investments. For instance, at 2.5 percent inflation, $1 is worth 78 cents after 10 years, 61 cents after 20 years, and 48 cents after 30 years.

So what can you do to help ensure that you don't run out of retirement assets? Consider these tips:

• Use conservative estimates when making your withdrawal calculations. Add a few years to your life expectancy, reduce your expected return by a couple percent, and increase your expectations for inflation. While that will result in lower withdrawal amounts, it will also help ensure that your funds last longer. Take a careful look at any answer that indicates you can take much more than 3 percent to 4 percent of your balance out each year. Several studies have indicated that that is a reasonable amount to withdraw if you need your funds to last for several decades. That doesn't mean you can't take more out, but you should be very confident of your assumptions before doing so.
  
   
• Review your calculations every couple of years. This is especially important during the early years of your retirement. If you find that you're depleting your assets too rapidly, you may be able to go back to work on at least a part-time basis. If you find out late in life that you're running out of assets, you may not have the option of going back to work.
  
   
• Consider placing three to five years of living expenses in cash or fixed-income investments. That way, if you encounter a severe bear market, you won't have to touch your stock investments for at least three to five years, giving them time to recover.