A person saving for retirement who chooses low-cost investments instead of higher-cost ones could have a standard of living throughout retirement that's more than 20 percent higher, says Nobe Prize winner William Sharpe.

In an interview published on the Web site for the Stanford Graduate School of Business, Sharpe, a professor emeritus at the school, shows how much more money retirees would have if they had saved for retirement using lower-cost index funds rather than higher-cost actively managed funds.

Investments in stocks can be very risky and the individual investor needs to understand that with investment risk comes uncertainty about retirement income, says Sharpe. He adds that it is misleading to assume a 7 percent or 8 percent return on stocks for the next 20 years, as some software models will do.

He also was critical of the 4 percent rule, relied upon by many financial advisors, which suggests that retirees most likely will not run out of money if they annually spend an amount this is about 4 percent of their initial portfolio, adjusted for inflation. Sharpe says there are no guarantees that a down market will recover enough to sustain such lifetime retirement withdrawals.

"In my current research, I'm trying to understand the characteristics of the many different solutions being offered by the financial industry," he says. "At this point, all I can say for certain is that it is unlikely that one approach will be best for everyone."