NEW YORK (CNN/Money) - My husband and I are in our early 70s. After the value of our IRA dropped by half, we took all our money out of mutual funds and put it into CDs, which are now paying a paltry 2 percent. What are seniors like us supposed to do? Is there any place that's relatively safe to invest that pays a decent return?

-- Annette, Wappingers, New York

I know this might not be much of a consolation, but you're not alone. Tens of thousands, if not hundreds of thousands, of seniors have found themselves in the same position as you: they crave safety after being burned in the last bear market, but the investments that provide that warm and fuzzy secure feeling don't provide high enough returns to live on.

I don't want to suggest that there's some magical escape from this dilemma. I don't have any secret stash of CDs paying 10 percent or stocks that go only up and never down.

And, unfortunately, some people who suffered big losses after investing too aggressively during the '90s bull market may have to face the difficult task of entering retirement with a much smaller nest egg than they'd anticipated.

But there are some moves you can make that can at least increase the odds that you'll be able to get a decent return on your nest egg without subjecting it to outsize risk. Here's what I recommend for you and others who find themselves in a similar position:

You say you've shifted all your money from mutual funds to CDs. That kind of rash move is likely to do more harm than good.

RELATED ARTICLES • Can I deduct 401(k) losses? • Get your retirement plan on track • Climbing the CD ladder

For one thing, it suggests that, among all the investment alternatives out there, you know exactly which one is best for you. No one has that kind of knowledge. And moving all your dough amounts to an all-or-nothing bet.

Smart investors realize that, since we don't know what the future holds, we're better off hedging ourselves by putting money into several investments rather than plowing it all into one.

Unfortunately, the moral that many older investors seem to be taking from the last few years of lousy stock returns is that stocks are just too risky an investment for retirement.

But that's not the right lesson to take from the recent bear market experience. Yes, stocks can suffer painful and prolonged setbacks. That doesn't mean they don't deserve a role in a retiree's portfolio.

Unless your portfolio is very large or the amount you need to withdraw from it for living expenses is very small, chances are that keeping all your money in CDs -- or even bonds -- won't provide the returns you'll need to provide income during a retirement that can last 30 or more years.

Stocks, on the other hand, can provide the solid long-term returns that retirees need to maintain the purchasing power of their portfolios. So stocks do deserve a role in retirees' portfolios, but retirees have to be judicious in the way they use stocks.

The losses you've suffered are in the past. What you've got to do now is focus on what you need to do for the future.

First priority: figure out how much money you'll need to draw from your portfolio for living expenses on a regular basis. Once you have an idea of how much income you need from your investments, then you can set about building a diversified portfolio that has a decent shot at providing that income.

I admit that doing this -- creating a portfolio that jibes with your retirement income needs -- requires a bit of work on your part. But that's reality.

You can begin this process by going to the T. Rowe Price Retirement Income Calculator. There, you'll be able to see the odds that different combinations of stocks, bonds and cash can provide different levels of income.

You may very well find that the odds of your portfolio delivering the income you'd like are very low. If that's the case, you'll have to lower your expectations -- or come up with other assets. But, in any case, by trying out several different scenarios on this calculator, you should come away with a good idea of how to structure your portfolio so you have a reasonable chance of providing a steady income stream from your assets.

One final note: Once you've created your portfolio, don't make big changes in it. If the current stock rebound takes off and becomes another major bull market, don't start moving a big slug of your money into stocks just because all the TV pundits are giddy about them.

YOUR E-MAIL ALERTS Follow the news that matters to you. Create your own alert to be notified on topics you're interested in. Or, visit Popular Alerts for suggestions. Manage alerts | What is this?

I suspect it was this kind of attitude that got many investors in trouble at the end of the last bull market. Just rebalance your holdings maybe once a year to bring your portfolio back to the original proportions you set for stocks, bonds and cash, and don't get caught up in the prevailing euphoria or gloom, as the case may be.

Of course, following this kind of steady-as-she-goes strategy can't guarantee you'll get the income you need. But it offers a much better shot than a "I'll invest in what seems good at the moment" approach.

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "Investing for the Financially Challenged." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Monday afternoons.