| Instead of thinking about what percentage of your portfolio is in stocks, begin by calculating how much money you need in lower-risk bonds and cash to fund your monthly overhead. Let's say, for example, that you need $5,000 a month - or $60,000 a year - to cover the difference between any public or private pensions and your monthly overhead. Then set aside five years' worth of living expenses or, in this case, $300,000 in short-term bonds and cash. Here's why... The average bear market in the U.S. lasts 15 months. The average decline is 32%. And the average time to recover to the old high is another 2.1 years. So the average round trip from the beginning of the slide to full recovery is approximately 3 1/2 years. However, sometimes bear markets are more severe and stocks take longer to recover. So let's be conservative and set aside enough money for a five-year round trip from peak to trough to new peak. When the market is at or near new highs, retirement rebalancing means liquidating stocks (not bonds or cash) to pay your expenses and fund that extra year of reserves. When we're in a bear market, however, rather than cashing in your stocks at low prices, you pay your expenses out of your five-year reserve. (And the interest these bonds and cash pay will provide an inflation kicker.) If the market keeps going down, you continue to live off that shrinking reserve and refrain from cashing in your stocks at bear market prices. When the market finally recovers to new highs, you then "retirement rebalance" once more by cashing in enough equities to restock your five-year reserve. This is a workable, real-world solution to the perennial question of how much to keep in stocks. And it allows you to sleep at night because you know you have a multiyear cushion to tide you over during the bad years. What if you don't have a portfolio large enough to set aside five years' worth of expenses? Then you face a different set of options: 1. Work longer 2. Save more 3. Invest at a higher rate of return 4. Set aside a slightly riskier three- or four-year reserve 5. And/or reduce your living expenses. But for those who have stuck to the investment principles I've long advocated - starting early, saving regularly and investing wisely - retirement rebalancing is an effective solution to that age-old conundrum: How much should I have in stocks once I retire? Good investing, Alex | 
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