Your retirement will look nothing like your parents' retirement.

Hopefully this is obvious to you, since there are many differences between your generation and theirs, but one thing you may not have considered is that thanks to ongoing improvements in health care, you'll live much longer than the previous generation.

According to The Economist, "In 2002 there were 50,364 centenarians in the United States, but it is estimated that 500,000 baby boomers will live to be 100 years old." That statistic may sound positive, but it should also serve as a wake-up call for your investment portfolio and retirement planning.

It's very possible for future generations to have retirements that last 30 years or longer. Since outliving your assets is a very scary prospect, that means you need to re-evaluate the stock exposure in your investment portfolio.

How much is enough?
The current market environment has reminded us that the stock market can be a volatile place. The desire to cash out of stocks altogether in a market like this is understandable, particularly if you're currently in retirement. Unfortunately, that tack is short-sighted.

See, while fixed-income products like CDs and bonds may be less volatile, they can't fuel portfolio growth as well as equities can. And given that the long-term average inflation rate is more than 3.4% per year, and your retirement could last 30 or more years, you need to stay ahead of inflation for a long time. Which is why you need stocks.

Professional money managers have reacted to the new retirement reality by keeping retirees invested in stocks throughout retirement. Consider the asset allocation of the Vanguard Target Retirement Income Fund (VTINX), which is designed for current retirees:


% of Assets



Fixed Income


*Source:, as of June 30, 2008.

Of course, one asset-allocation plan doesn't fit everyone. Another way to determine how much of your portfolio to keep in equities during retirement is to ask yourself a simple question: How much of your portfolio will you need to maintain your lifestyle over the next five to seven years?

Whatever amount it turns out to be -- 40%, 80%, etc. -- that's the amount you should consider keeping in fixed-income products like bonds, Treasury inflation-protected securities (TIPS), and CDs. The rest should be divvied up among larger, well-established, dividend-paying equities like Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ), and Kraft (NYSE:KFT). Because you'll own stable, steady dividend payers, you'll have the option to take the extra income every quarter or reinvest the dividends to increase your stake.

With that balance, you'll have some peace of mind for the short term, but you'll also keep your portfolio growing for the long haul.

Information overload
All of these allocation options can be a bit overwhelming and could lead to a lot of second-guessing. If you're still not sure how much you should devote to equities, Robert Brokamp, advisor of our Motley Fool Rule Your Retirement service, has set up model portfolios for those approaching retirement and those already in retirement.

For example, for investors with less than 10 years to retirement, Robert recommends as much as 70% in equities and 30% in bonds. That may seem like a lot of stock exposure leading up to retirement, but then again, that portfolio may need to sustain itself for another 40 years!

Additionally, the equity portfolio is mostly large-cap in nature and features funds that hold traditional U.S.-based dividend payers like Altria (NYSE:MO) and Merck (NYSE:MRK), but also includes international exposure through funds that invest in the likes of Petrobras (NYSE:PBR) and BHP Billiton (NYSE:BHP).

If you'd like to take a closer look at Robert's model portfolios and develop a game plan to keep your investments producing throughout what could be a much longer retirement than you ever dreamed of, a 30-day trial to the Rule Your Retirement service is free of charge. Just click here to get started.

Todd Wenning plans his work and works his plan. He owns shares of Procter & Gamble, but of no other company mentioned. Petrobras, Kraft Foods, and Johnson & Johnson are Motley Fool Income Investor recommendations. The Fool's disclosure policy will never retire.