Retirees need to earn more on investments
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Tony Proctor, CFP: In his own words

Tony Proctor is a Certified Financial Planner and president of Proctor Financial in Wellesley, Mass., which he founded in 1994. Proctor tells clients that they should assume they'll be in retirement for decades and that their money needs to grow if it's to keep pace with inflation over that span.

Don't count on working forever
You hear people say that they're not going to retire at the normal retirement age, and that's really unfortunate. It's just not possible; usually physically. I find that the people who tell me at age 55 that they're going to work until 67 are telling me at 62 that they want to retire the next year. The time frame definitely shortens.

Methodology
I like to tell people that retirement is not an event, it's a journey. I tell people to plan on being retired for 30 years. That means their money needs to grow for 30 years. A quick and easy methodology that someone could apply would be to take five years' expenses and keep it outside of the stock market. Whatever is left can go in the stock market. For some people that will be a big percentage, for some it will be small.

What's important is that it's not age-based. I'm very much in disagreement with age-based methodologies. I don't think they take into account the actual facts of someone's retirement picture. Look at someone who's 50 and is retiring tomorrow. If we use my quick methodology and they need $50,000 a year to live on they should have $250,000 not in equities. Maybe they have a $1 million portfolio, so they have 75 percent in equities and 25 percent in cash and bonds.

Now, look at a person who is 65 years old but is not going to retire until they're 75. Their investments have much more time to ride out market fluctuations. The 65-year-old's portfolio would have a much higher percentage of equities. He or she can tolerate the risk because they're not spending from their portfolio. The 50-year-old can't withstand nearly as much risk because he or she is currently taking withdrawals.

The key is you need to look not only at the level of assets but the timing of the spending of those assets. It's the timing part of that equation that most people leave out, but it's absolutely relevant as to how you should build a portfolio.

You start building the five years' worth of cash once you're five years away from retirement. When you're five years out, you set aside one year's worth of cash; four years out you set aside the second year's worth of cash, and so on.