I have a few more years to go until retirement but I am trying to develope my asset allocation strategy for now and determin how it will change as I approach retirement. I would appreciate some comments on how much cash you (currently retired) set aside for living vs stock and bond investments for the future. I am espicaly interested in your thoughts before and after the "dip" in the market.

My thinking is that if I spend 5% of my assets each year I will not run out of money. To cover bad markets I am thinking of three to five years of living expenses in cash. The cash includes CD's or Bonds that mature each year so the market risk has been removed. I consider Social Security, pensions etc the same as cash since there is no market risk to receiving the payments.

The question is how may years of living expenses do you keep out of investments (stocks and long term debt securities)and how does the current market drop affect your thinking?