What have investors learned from the stock market losses of the new century?

Not enough, apparently.

A new study by John Hancock Financial Services has found that investors are clinging to some out-of-date, 1990s-style expectations that could leave many short of the money they need in retirement.

According to Hancock's survey of 801 retirement-plan investors, the average participant expects stocks to furnish annual returns of nearly 16 percent over the next 20 years. The long-term average, represented by the Standard & Poor's 500, is just shy of 11 percent.

So investors are off by a few percentage points. Does it matter?

Plenty.

Let's assume you can save $5,000 this year in a tax-deferred account such as a 401(k). Assume you will raise your annual savings by 3 percent a year to keep up with inflation. If your investments return 16 percent a year, after 20 years you will have a nest egg of nearly $680,000,

Cut the return to the historical average of 11 percent and you'll have $391,000.

And if the return over the next 20 years falls below the historical average to, say, 7 percent, you'll have only $258,000.

Excessive optimism isn't limited to stocks. Hancock found that investors expect bond returns to average 10.31 percent a year for the next two decades. That's nearly double the historical average of 5.77 percent.

Even more amazingly, investors expect money market funds, one of the safest, most conservative places to stash cash, to pay annual interest of 9.8 percent. The historical average is 3.8 percent, and even that is hard to get these days.

No one knows what the financial markets will do over the next two decades, but it is certain that if you assume you'll get stunning returns, any surprise is likely to be a disappointment. If you plan for modest gains, a surprise will leave you better off than you expected to be.

Hancock concluded that most investors it polled would fail to build the wealth needed to furnish an adequate retirement income, which it defined as 75 percent of pre-retirement earnings.

Are you worried yet? Maybe you should be, but maybe not. The first step is to estimate how much money you will need in retirement. Second, devise a saving and investment plan that has a reasonable chance of success.

That 75 percent figure is a rule of thumb. To get a better figure, tally your cost of living now. Add things you hope to do in retirement, such as travel, and subtract expenses you won't have. Maybe you'll have paid off your house by then, for example.

Next, figure the retirement income you expect from dependable sources such as a pension and Social Security. Subtract that from your living-expense figure and you have the gap that will have to be made up by income from investments.

Now you have to search for ways to get there. This requires a computer loaded with financial software, such as Quicken or Microsoft Money. I like the Retirement Calculator found under the Planning button in Quicken 2002.

Suppose you want to receive $30,000 a year in income, after taxes, from investments, starting when you retire in 20 years.

You could get that by investing about $4,000 this year, then increasing the amount 3 percent every year for inflation. If you got that 16 percent return, you'd have about $553,000 when you retired. That would give you about $64,000 in annual income - the amount you'd need to cover taxes and make up for 20 years of inflation and still buy what $30,000 buys today. And it means all your money would be spent by the time you turned 95. Of course, you're not likely to get 16 percent.

By assuming a more likely return of 7 percent, you'll need to save $22,500 this year. Again, that will have to grow each year to make up for inflation.

If that's just too much, tinker with the assumptions. Suppose you retire in 22 years instead of 20. And suppose you expect to live to 90, not 95. In this case, you can reach your goal by saving $16,800 a year.

Still too much? If you already have $50,000 in investments, you need to start the process with $13,300 a year.

And if that's too high, maybe you should change your spending plans. If you needed $25,000 a year instead of $30,000, you could start by saving $10,500.

Playing these "what if" games is great for peering into the future. But remember: garbage in, garbage out. Play it safe and assume modest returns. The days of 16 percent annual gains in stocks are probably over. Most play-it-safe experts say it's smarter to assume 6 percent or 7 percent.