But so simple a calculation may not match each retiree's individual circumstances. What if one already had assets well beyond his or her needs? Or suppose one had proven abilities as a stock picker and were able to calculate the best values like a pro? How would it affect things if one were receiving a quite large fixed-income payment each month, for example from a pension fund, a trust, Social Security, or an annuity?

In addition, investors are living longer now than when that 100 minus your age formula was first developed. To offset the effects of inflation, "stocks for the long-run" are one of the best means for retirees to add extra growth to the portfolio and so improve the odds of not outliving their assets.

If you are a fairly typical retired investor and living off your nest egg, what then is a good allocation of your assets? In particular, how much should be invested in stocks?

1. Essentially all the sample retirees' income will be from the retirement portfolio, pension checks, and/or Social Security. Any other income, such as from gifts or part-time employment, will be treated as minor in relation to the whole nest egg.

2. The cited retirees hope to retain a significant portion of their nest eggs to bequeath to heirs, and so prefer not to greatly deplete their principal.

3. The total financial assets portfolio for each example is worth approximately $1 million (net asset value) at the outset. There is no long-term non-mortgage debt, and credit card bills are paid on time.

4. Real estate assets will not be included in the analyses, as they are either less liquid and/or less predictable than the other financial asset classes.

5. For simplicity, the amounts the indicated retirees require for expenses will not show increases for inflation, but the reader should be aware that, on average, rising expenses are likely to add about 3% or more a year to the households' necessary costs.

Once the situation is better clarified for some garden variety ordinary retirees, we can discuss a few ways in which the suggested allocations might be altered to fit unusual circumstances.

With respect to his financial assets, Michael has long felt he understood the stock market and so has a habit of keeping a large proportion of his assets in stocks or stock mutual funds. However, in the 2000-2002 bear market, his portfolio lost about one-third of its value. Following this decline, his equity assets now stand at about 65% of his non-real estate holdings, and he's not been able to significantly increase that percentage without dipping into his bond assets or money market funds. Because of the uncertainties in the market, as well as in his own circumstances, he's been unwilling to do that to any large degree.

To assess Michael's proper equity percentage, we first look to The Vanguard Group and Fidelity Investments' stock percentages, in their "life cycle" mutual funds, that adjust allocations depending on their client retirees' ages. With both companies, we find that, for current retirees aged 80 or above, the recommended equity allocation is just 20%.

Reviewing Michael's situation, it appears that he likely has sufficient funds, if he is careful with his portfolio, to retain assets through the remainder of his life.

However, his holdings are vulnerable to a major potential threat. With equities at 65%, any significant downturn in stock markets would severely reduce his net worth. And, at age 85, he is unlikely to live long enough to recoup those losses. After a major bear market, it sometimes may require ten to twenty years for complete recovery of average stock prices.

There is no reliable way to know just when such a big drop in equities could occur. The only certainty is that markets fluctuate widely and tend to go down more when, as now, prices are generally elevated, with higher than normal price to earnings and price to book value ratios and lower than normal dividend percentages per share.

Investors sometimes bid stock prices up out of all proportion to the underlying worth of shares (and could continue to do so for at least a few more months), but Michael's ability to maintain most of his nest egg intact partly now depends on good luck, though the odds seem to favor a new downturn before stocks move substantially higher.

Fortunately, though, his annual financial requirement of $50,000 can be easily met with his present portfolio amount. He might, to consider the other allocation extreme, even convert his entire holdings to Certificates of Deposit, short-term bonds, or money market funds, and so have both great security of his holdings plus the ability to live off them for up to at least twenty years.

But this level of caution is probably unwarranted. And even given Michael's advanced years, he needs to use part of his assets as a means for his net worth to potentially grow and so offset some of the effects of inflation. A well managed 20-25% of his portfolio in stocks or stock mutual funds can help accomplish this.

He might, however, be well advised to reduce his equity exposure. It is now over three times the level suggested for his age and thus involves excessive market risk.

If Michael wishes to retain greater involvement in the stock market than with about a quarter of his portfolio, he can do so through specialized annuities that invest one's assets in stock mutual funds yet provide a fixed income (for example 6-7%) for an extended period, i.e. not less in years than the initial value of the mutual fund annuity holdings divided by the percentage dollar amount. Thus, for an annuity with a present mutual fund market value of $250,000 and providing income at 7% a year, Michael would receive $17,500 for 14.3 years, after which any further payments would depend on whether the mutual fund holdings, after moderate expenses, had in the interim increased beyond their current market value. (For particulars, I defer to readers' financial consultants. Within our extended family, such specifics are available through Frank, a Raymond James Branch Manager.)

Besides such annuity instruments and about 20-25% in direct stocks or stock mutual funds investments, the balance of Michael's financial asset portfolio could be invested in cash equivalent holdings (such as money market funds), in short-term bond assets, or in closed-end bond funds, this last type asset to be held indefinitely, simply for the income. For instance, ACM Income Fund, Inc. (ACG), effective 6/2/04, at $7.95, had a yield above 10% a year and was trading at a significant discount to its net asset value. Van Kampen Strategic Sector Muni. Trust (VKS), at $13.15, was providing an essentially tax free yield of 6.7%.

The couple lives quite frugally in a rural area, on $40,000 annually, growing a lot of their own produce. Charles is a conservative, long-term stock market investor, comfortable with riding out the downs and ups in the market with very little trading and doing reasonably well at this, averaging perhaps a percentage or two a year better than the market averages. Equity holdings are currently about 50% of their retirement portfolio.

Lacking long-term health care insurance, Charles (plus his portfolio) is particularly susceptible to the expenses of any major illness or injuries.

It is estimated that long-term health care today costs up to about $250,000 for roughly three years of treatment (a typical coverage term for services provided under long-term health care insurance), increased by around 5% a year due to higher than average inflation in the health care industry.

So, if one has set aside that (rising target) amount in stable assets, such as money market funds, one can self-insure against a large part of the costs of long-term care, even if one has not obtained such insurance through an outside company. (Unless quite well off, as a retiree it can be important as well, to whatever extent one reasonably can, to have insured against catastrophic illness expenses, through Medicare or otherwise.)

So, an initial allocation recommendation for Charles is that he adjust his portfolio to include $500,000 in money market funds or other cash equivalents ($250,000 each for he and his wife). This will leave him about $500,000 to generate the $40,000 a year he and his wife need for other expenses and to perhaps leave an estate for others or for his chosen charity or foundation.

As he has about 50% of their holdings currently in equities, is in his mid-70s, enjoys reasonably fine health, and is a good, long-term investor, and since the other 50% of their assets, in money market funds, will give great overall stability to their portfolio, for now this fifty-fifty allocation would seem appropriate for Charles. He should just be careful to rebalance frequently, especially after large upward or downward moves in the stock markets, to keep within about 5% of his current allocation level, and to have in mind the need to gradually reduce his stock market exposure in the next few years.

If he stays fairly healthy and mentally alert, he may well wish to keep his hand in by continuing to make careful investments in future. Yet, by lowering the remaining equities' percentage of the total by about 2-3% a year, he will decrease his market risk, better assuring, even after a drop in the market, sufficient holdings for both his own needs and his long-term hopes for an estate.

An easy, gradual way to accomplish this might be to set himself decreasing growth targets for his stocks, i.e., setting an upside limit to them based on a 10% increase after expenses the first year, up another 7% beyond expenses after the second, etc., until down to about 25% of his financial assets held in equities.

Note that, once such target levels are established, all significant increases in the portfolio stock or stock mutual fund values over the intended equity amounts would be sold or exchanged, with the net proceeds going to cash equivalent or short-term bond assets, and with the non-equity portion of the portfolio thus gradually increasing relative to stocks.

She gets hefty pension checks that pay half of this amount annually. In addition, she receives a comfortable income from Social Security. The balance of her needed total is obtained from bond yields or the dividends provided by her mutual funds. She has never dabbled much in the stock market and, indeed, is fairly nervous about it. She has only about 25% of her financial assets in equities, the result of receiving some mutual funds as part of her divorce settlement over a decade ago.

We begin our evaluation of her portfolio by looking at the retirement mutual funds managed by Wells Fargo and T. Rowe Price. Here we find that for persons around age 65 and in good health who, like Edith, may be enjoying retirement for up to three more decades or so, the recommended allocation in stocks is from 35-40%.

In this instance, the suggestion is not to reduce but to increase investments in stocks or stock mutual funds. Given her likely longevity and the inroads inflation may make in that period, the 25% she now has invested in mutual funds will probably not be adequate to keep her overall portfolio both ahead of inflation and meeting her withdrawals for expenses over a relatively extended period without reducing her principal.

Roughly thirty years ago, $3000 would buy a nice car, $3 an adequate haircut, and 30 cents airmail postage around the world, a rather filling sandwich, a gallon of gas., or a large bar of chocolate. Imagine trying to live on one-third of your current budget, to see the ravages even moderate inflation may well make in the next three decades.

Moreover, analyzing the assets more carefully, we see that her current percentage invested in stocks is even lower than it appears to be at first. Although her financial assets at the outset are worth $1,000,000, for a realistic assessment of her holdings, Edith's check receipts from Social Security and from the pension plan ought to be factored into the portfolio mix.

Dividing her annual income from these sources by 6% (an average long-term conservative bond yield), we find that the present value of her pension plan checks (i.e. the amount at 6% required to generate the annual payments to her) is $500,000, while that for her Social Security payments ($18,000 annually) is $300,000. Thus, the actual current value of Edith's "expanded portfolio" is $1,800,000 (and we're not even considering any real estate she owns).

Her equities portion, $250,000, is only 13.9% of that. Since at this point Edith is somewhat leery of investing in stocks herself, we'd recommend that, as she is increasing her stock and stock mutual fund holdings, and later learning to manage such an equity portfolio, she at first obtain the guidance of a carefully selected broker.

She might also read some books, of which there are several excellent resources available, and even take a few informal courses on personal finance and investing, to increase her comfort level in this area. She'll likely be able to profit from a well managed stock portfolio for some time to come and should know the basics about it, to avoid some of the common mistakes and, ideally, be able to take good advantage of the markets' frequent swings and opportunities.

For now, it seems best, to provide future growth in her portfolio, keep ahead of inflation, and assure a proper balance of stocks vs. fixed income, to raise her equities to 35% of her "expanded portfolio," or to $630,000, but to do so gradually, with regular increases over a year or so, until the optimum level has been achieved. Thereafter, she can rebalance frequently, at least annually or after major market shifts, to maintain the equity portion at roughly 35%.

The best stock percentage of the portfolio for you, whether or not you are by now enjoying retirement, can well depend on several factors and on how well you "fit the mold." Are you a "typical" investor or retired person, or are there other considerations that change the equation in your case?

If you are particularly talented at stock market investing, tending over the long-term (through both bull and bear market cycles) to beat the averages, then you probably would do well to increase your equity allocation above what might be otherwise the norm for someone in your overall situation.

Just as with Edith, should you have large, reliable fixed income payments coming in, you can raise the stock portion of an "expanded portfolio" significantly, because the stocks will then be well balanced by the larger than usual non-equities category.

On the other hand, if you're not in such good health and/or do not have long-term health care insurance, then, all things otherwise being equal, it is probably best to have a lower than average allocation in equities, for you may at some point need to call upon a dependable reserve for large, unexpected expenses, and it will be best, if such extra funds are suddenly required, not to have to sell a substantial portion of your equities just when the market might be down.

If still in doubt about the best stock allocation, it may be helpful to seek professional advice. There are many excellent certified financial planners who charge reasonable fees rather than commissions and are qualified to assist with such important decisions, which, after all, can wind up either costing or adding to one's portfolio hundreds of thousands of dollars.

It is tempting, when equities are going up, to look at the market as an easy money machine. At such times, it usually is wise to be lightening up on one's stocks or stock mutual funds. Chances are, they are getting then above one's ideal allocation level.

Similarly, it is easy, when stocks are going down in a big way, to fall into the trap of selling with most of the other momentum or impulse investors. Instead, that is usually a good time to buy, and generally you'll find then that equities have gotten somewhat below the planned allocation level, so that regular rebalancing of the portfolio will take care of the deficit.

By investing this way, one tends to buy low and sell high, among the most basic but sometimes hardest of stock tips to follow. And by first establishing and then maintaining one's correct portfolio percentage in equities, there is an added benefit: one can better enjoy a good night's sleep, always an advantage when seeking a rewarding retirement!

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)