For a pilot, too much height can be an embarrassment, but too little is always fatal. For equity investors living on their investment income, read cash instead of height. To run out of cash for life's essentials in retirement -- European vacations, a season's ski-pass, sporadic handouts to grandchildren -- is nothing short of a disaster, potentially levering the unfortunate senior citizen into a forced selling position. Yikes!

Okay, so we know the stock market is almost invariably higher at the end of any given five-year period than the beginning, but within that time all sorts of nasty things can happen, even to Beating the Dow-type portfolios; just take a look at the Foolish Four during the mid to late eighties. The long-distance Fool will shrug these negative years off for the irrelevancies they are and keep returning to the retirement planner in his financial software, gleefully recalculating the nest egg he will have in thirty years' time. But when he finally hits that golden age, he's going to have to start thinking about a subject tedious in the extreme -- namely, cash management.

It isn't glamorous, it isn't exciting, but a little attention to detail here will save a good few nights of anxious tossing and turning when the market heads South for one of its periodic vacations. The Fool in the third age is going to be deriving his income from two main sources -- dividends, and cash from the sale of stocks which have realized capital gains. Dividends, the bedrock on which Beating the Dow is based, will tend to remain fairly stable and so can be relied upon to produce a regular income. Not so for capital gains and if, as is likely, you will be at least partly living off of them, then read on!

There are only two occasions when stocks should be converted into cash -- at the yearly rebalancing when the portfolio as a whole has shown a positive return or, at a pinch, when an individual stock has reached a new high. To sell at a loss at any other time is to chip away at the foundations of the very strategy which has been the making of the Foolish investor -- a most un-Foolish act, you will agree.

The inevitable conclusion, then? The retired Fool should create a buffer on which to live when times are lean for stocks. This should contain between two and five years' income, depending on individual nervousness, astrological market forecasts and goose entrail analysis. The buffer will have to be easily convertible into cash and its value must not vary significantly with the economic climate. A good spread would include cash in a money-market fund, T-bills and short- and intermediate-term corporate bonds.

Of course, in good years the buffer will painfully under-perform the stock portion of the portfolio, but it's hard to see how you could live purely on stocks without getting burned once in a while. And isn't not getting burned what the Fool is all about?