Retiring Old Thinking

"It's not too late to get back into the market and it's imperative that you do. It's the only hope a person has to overcome this gap in retirement income," says John Sestina, a certified financial planner who serves on the ethics committee of the National Association of Personal Financial Advisors.

Sestina says that retirees make two errors: They get out of stocks, and they buy government bonds rather than higher-yielding corporate bonds.

"The myth is that Treasury bills are less risky than corporate bonds, and that bonds are less risky than the stock market, so this makes them good investments," he says. "It's interesting that with all the financial magazines and TV shows and articles, people have become numb. They hear that bonds are conservative, so they rush to that instead of doing their homework. But over the long haul the market has always outperformed bonds."

He agrees that people must turn to more aggressive portfolios, even as retirement looms, and that the downside presented by volatility can be managed with time.

Beyond Conventional Wisdom

Financial planners say that investors should assess their situation honestly and then create an investment plan that can serve those needs. "Ask how best you can invest this money, not what is the most conservative way," says James Kibler, a certified financial planner with Eldridge Financial Planning who specializes in asset allocation.

And in order for investors to tackle this reality, they must know their risk tolerance.

"If there's a mismatch between an investor's portfolio and where the person is at in terms of risk tolerance, then bad things happen. Inevitably, we'll enter a bad market environment, the portfolio will perform worse than expected and this will cause some panic. The person will take the wrong action at exactly the wrong time," says Genworth's Brown.

Kibler adds that investors should also be flexible. "If working three more years or taking on another job in retirement doing something you enjoy might allow you to have much more flexibility, consider this before saying you'll just shuffle assets around in your portfolio."

"The real issue is that retirement in America today is being redefined ... 21st-century retirees have more responsibility for their fates than at any time in recent history," says Prudential's Odenath.

And because of this, conventional wisdom that has pushed so many retirees into bonds just won't be enough.