There are plenty of myths surrounding retirement. Let's examine one of the biggies.
Myth: Take your age and subtract it from 100: The remaining amount is the percentage you should have invested in stocks.
Fact: Americans are living so much longer, in some cases well into their 80s, so that old axiom no longer works.
Now that we've cleared that up, how should you allocate among stocks, bonds, and alternatives if you are 5, 10, or 20 years or more from retirement?
That asset allocation depends not on when you are retiring, but on how long you expect to live, local advisers say. And Americans are living so much longer than they - or their financial planners - expected, that among the chief worries now is outliving assets.
The bonus of living longer is tempered by whether we will have the money to live comfortably for an additional 25 years or more in retirement. A 2013 Merrill Lynch study ranked top concerns among retirees as the following: serious health problems, being a burden on one's family, and outliving assets - with far more women than men citing running out of money as their top concern.
"It's a misconception that you should target your asset allocation to your retirement age," says Paul Emata, director of investments at PNC Wealth Management in Wilmington. "Many investors look at these target-date funds, and think they're all set. But you need a diversified portfolio for as long as you live."
For high-net-worth clients on the younger side, PNC generally models a fairly high allocation to equities: 60 percent to 70 percent. Alternatives that aren't correlated to the stock market (commodities, hedge funds, real return funds, and inflation-protected securities): 20 percent. And a small amount in fixed income.
For those closer to, or at, retirement age, but still wanting a growth bias in their portfolio, the PNC model is about 50 percent equities.
"It's a bad idea to put all your money in fixed income just because you turned 65," said Binney Wietlisbach, president of Haverford Trust. That's particularly true now because the bond market is no longer yielding the types of returns of even a few years ago.
"Stocks are much more attractive than bonds, and a younger investor, in their 30s, say, should put as much as they can in stocks - in their retirement accounts - as those are truly long term," she said.
However, saving for a house, a wedding, or children should be done in non-retirement accounts, she advised. And some retirees want to continue investing in stocks even until they are well into old age.
"A client in her mid-50s became a widow many years ago, when interest rates were very high on fixed income. She had a 60 percent stocks/40 percent bonds allocation. She lived until she was 91 and died in 2000.
"Her stocks went from 50 percent to 96 percent of her portfolio [at the time of her death], and she wanted it that way."
Michael Galantino, managing director of the private client group at Boenning & Scattergood in Conshohocken, says the popular target-date retirement funds are "more a marketing thing than financial planning."
"These target dates don't make sense, especially with longer life expectancies . . . ," he said.
For average clients, Boenning & Scattergood suggests clients own 65 percent equities, 20 percent fixed assets, and 10 percent to 15 percent cash.
Galantino, 50, personally prefers that income come from stocks over bonds. About 95 percent of his personal holdings are in stocks.
His advice is to lower volatility in a portfolio as a client gets older, rather than just shifting allocations into bonds. "It's an old wives' tale that bonds don't have volatility," he said. "Bonds are very volatile."
The size of a client's portfolio matters.
"A 65-year-old with a $2 million stock portfolio . . . , with two properties and his wife's pension can be more aggressive," Galantino said.
"If he has $500,000, I'm more conservative."