We spend a lot of time talking (and writing) about the process of saving for retirement. It's a confusing, challenging endeavor for many -- if you're new to investing, or don't have a lot of exposure to the basic concepts, picking your way through a 401(k) plan's options or setting up an IRA can be daunting. For some, it's so daunting that they don't do it, or put it off indefinitely, and they let years slip by before they start saving.

But happily, plenty of people do get it. They've put in the time to learn how to invest well, and they've found ways to save more of what they earn. Combined with their discipline to contribute to their retirement plans and IRAs year after year, they end up with a nice nest egg as they approach retirement.

Great! Now what?

Shifting from saving to spending
Obviously, drawing down that nest egg requires a different mind-set than the one you had while you built it up. While you're building your retirement fund, the ups and downs of volatile stocks such as Baidu (NASDAQ:BIDU) or PotashCorp (NYSE:POT) don't bother you too much. As long as the fundamentals remain strong, and the overall trend is going in the right direction, who cares if the stock -- or the market -- falls sharply for a year or two?

But when you're planning to spend that money, suddenly that drop becomes a major problem. The ups and downs of your nest egg's overall value now seem to mean the difference between a secure retirement and going broke early. You're strongly tempted to shift the whole thing into a money market fund -- or just buy an annuity. Sure, a money market's yield is low, but at least your nest egg will still be there when you need it. And the fees on an annuity can be outrageous -- but at least you're guaranteed an income stream. Right?

There's gotta be a better way.

There is!
You may know that most experts recommend that you limit your withdrawals to about 4% of your retirement fund's total value every year. That's good advice. You may also know that some of us recommend that you keep a sizable portion of it invested in stocks -- all the money you won't need for at least five years should be in stocks, in part to help you keep up with inflation.

But managing that stock portfolio will require -- again -- a different mind-set than the one you had while you were building it in the first place. In our Rule Your Retirement newsletter, advisor Robert Brokamp examined this question in detail back in January 2008, when few could've imagined how bad things would get.

Despite the recent drop, you'll still want to own some stocks in your asset allocation plan. You could easily live 30 years or more, and that's too long a timeframe to rely entirely on bonds and other low-risk investments. But there are some big differences in how you set up a stock portfolio for retirement.

If you were still working and saving back in the late 1990s, you could afford to take some big risks on companies like Apple (NASDAQ:AAPL), Yahoo! (NASDAQ:YHOO), or Pets.com, hoping that one or two would work out well over the long haul. But once you've saved all you're going to over your career, managing your nest egg requires more of a conservative approach.

Does that mean you have to dump all your stocks and hunker down with traditional defensive plays like bonds? Not at all. Among other things, it means spending some time looking at blue chips like Genentech (NYSE:DNA) and dividend-paying stars like Kimberly Clark (NYSE:KMB) and PepsiCo (NYSE:PEP) instead of throwing all your spare cash into the next great wonder stock. It means being sensible, rather than adventurous, as you'd expect -- but it doesn't mean foregoing risk entirely. And it means being "sensible" in some ways you probably haven't thought of.

Times are hard now. But you can still fund your retirement -- just don't give up on your investment plan.

More on securing a happy retirement:

To read more of Robert Brokamp's retirement analysis, along with everything else Rule Your Retirement has to offer, help yourself to a complimentary 30-day guest pass.

Frustrated with your 401(k)? Even if your employer's plan isn't the greatest, you don't have to give up your dreams of a happy retirement.  Get the tips you need to turn your retirement savings around in our special report, "How To Make The Most of Your 401(k)" -- just click here for instant free access.

This article, written by John Rosevear, was originally published on Dec. 6, 2007. It has been updated by Dan Caplinger, who doesn't own shares of the companies mentioned. Kimberly Clark and PepsiCo are Motley Fool Income Investor selections. Baidu is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. The Motley Fool's disclosure policy is a firm believer in balancing risk with reward.