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As you no doubt already know, money in the stock market is always at risk. Though the stock market provides the highest returns over the long term for your savings dollars, it is never the case that you can be sure that the money you have in the market will still all be there in the same amount a week later -- or an hour, month, year, or even five years later. This, by no means, is such a bad thing when you're in your saving years. Consider the words of famed investor Warren Buffett on this matter:

"If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

So what happens as you get closer to retirement and need to sell equities within three to five years as part of your retirement plan? You'll want to be insulated, at least in part, from the kind of year that we're in right now.

The best way to protect the money you'll need when you leave the workforce is to take some money out of stocks and move it into bonds. As Fools, we maintain that money we know we will spend in the next three to five years should not be invested in the stock market. Stocks go down, and we don't want to sell into a down market when we need the cash. Therefore, we want that money in more stable investments like money market funds, T-Bills, CDs, and short-to-mid-term bonds. Those vehicles tend to be "safer" than the stock market over the short term, and that means by using them there's less chance we will have insufficient cash when we need it.

This is what's called allocation -- you're allocating the money you'll need to live off of to a safer investment vehicle. So the use of short-to-mid-term bonds fits the bill most appropriately. And, as a rule of thumb, they will on average provide a slightly better annual return than the other short-term, interest-paying vehicles we mentioned.

Be prepared as you approach the years closest to retirement to start moving some of your money out of stocks and into bonds or other interest-bearing vehicles. Here's a handy rule of thumb: beginning about five years before your retirement, move one year's income from the stock market into bonds. Then do that each year until you retire, at which point you'll have five years of savings allocated to bonds, and the rest -- that money you won't need to spend for five years -- still in the stock market. By doing so, you're thus gradually limiting your risk to short-term stock market movements as your retirement date approaches, while keeping the appropriate long-term savings allocated to the stock market.