Longevity is one of the biggest risks of retirement — and life expectancy is steadily increasing. By age 75, life expectancy increases to 86.9 years for females and 84.6 years for males.

Ironically, people with a higher life expectancy tend to be pessimistic and think they will die young.

“You may live 20 to 40 years after retirement,” said Jane M. Young, certified financial planner at Pinnacle Financial Concepts.

Many people want to put all their money into fixed income products after retirement, but Young doesn’t recommend that.

It’s a false preconception that one can only earn an income stream from interest and dividends during retirement. In reality, the highest percentage of return during retirement — over time — comes from the stock and stock mutual fund portion of a portfolio, she said.

“Just because you’re not working anymore doesn’t mean your money should quit working for you,” Young said.

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Money should be in several “buckets.” Money needed during the next five to 10 years needs to be secure, and in products such as certificates of deposit or bond funds.

Money that retirees will need in 15 to 20 years needs to be diversified, with asset allocation according to “what they need from a timeframe standpoint, and then layer that with what they need for peace of mind,” Young said. “Emotionally, they can’t handle the swings of the stock market, but people are living longer now. At least 50 percent of their portfolio needs to keep working for them — to take them into their 80s and 90s.”

Young cautions clients not to fall victim to the “recency effect,” noting that headlines during the 1980s also screamed doom and gloom. But reality is that this recession is “one more bump in the road.

“Retirees should stay diversified, have an emergency fund, and not overreact when one asset class goes bad or does really well,” Young said. “Stick with the plan — don’t panic and pull things out of the stock market (when it’s down) or jump on the bandwagon and put everything in stocks when they’re doing well.”

Calculating and saving

When calculating how much money they’ll need for retirement, people should plan on living into their 90s.

“Calculate when you want to retire and how much income you’ll need in today’s dollars to maintain your lifestyle,” said Scott Theodore, managing partner of Northwestern Mutual-Denver. “Then make the assumption of inflation and the rate of return (on investments) you can expect.”

Of course, starting earlier is preferable. “The magic of compound interest has more time to work if you start earlier. You want the money to work for you, rather than you working for it,” Theodore said.

And for investors who think the game is about buying a hot stock at some ideal, opportune time, think again. “It’s more important to have time in the market — than timing the market,” he said.

Investing should be systematic — a specific amount each month, which takes the emotion out of investing. Dollar cost averaging is the strategy of investing a fixed amount at regular intervals. “When the market is up (your money) buys a little less,” Theodore said, “and when the market’s down, you buy more.”

The key to steadily investing for retirement is building a habit of saving money from cash flow — then investing from savings to stay “one step emotionally removed from ‘do I need this money to live now?’”

In addition to dollar cost averaging, investors need to “preserve what they have with long-term care insurance,” Theodore said.

The annual cost of long-term care is $63,000 to $75,000, and increases each year. Because half of people age 65 and older will need long-term care, insurance “protects the assets you’ve built.

“Aside from market corrections, the one main thing that can (decimate retirement assets) is the need for long-term care,” Theodore said. “So you carve out a small piece of retirement assets to protect yourself against that risk.”