(MONEY Magazine) – For Larry Elgin, retirement came fast--and managing postwork finances has grown tricky. In the mid-'90s, Larry was unexpectedly laid off from his marketing job, just two years shy of a full pension. He knew his reduced benefit wouldn't be enough to support himself and his wife Eileen in retirement, but he couldn't find a job that paid close to what his old one did. So he rolled the $140,000 in his 401(k) into an all-stock IRA, picked up a little consulting work and wished for the best. "My hope at the time was that the equities would grow to the point at which it would set us up for the rest of our lives," says Larry, 68. For a few years, the stock market cooperated nicely. By the time Eileen, now 65, retired from her job as an operations specialist at a bank in 1998, Larry's IRA had doubled, and he decided to fully retire. Two years later, it had reached $340,000.

Then came the bear market, and the Elgins' portfolio lost 50% of its value by 2002. Fearing their retirement was in jeopardy, the Enfield, N.H. couple got rid of many of their individual stocks, replacing them with stock and bond mutual funds. "I took a chance on the market," admits Larry. "Maybe it was kind of naive on my part, but what else could I do?"

The Elgins' IRA has rebounded to $250,000, but the couple still aren't sure that's enough. In addition to the $45,000 a year they receive from Social Security and Larry's pension, they've been withdrawing about 6%, or $15,000, a year from their IRA to provide a comfortable life that includes a few weeks in Florida. "I know I'm going to have to dip into the principal somewhat, but the goal would be to do that as little as possible," says Larry. He's worried that he's wasting money on high management fees and nervous that the couple's 65% equity stake is still too high. "If we have another three years like 1999 to 2002, that would really kill us," he says.

To maintain their current 6% pace of withdrawals and not run out of money, the Elgins need a stock and bond portfolio that reliably earns at least 6% a year on average with minimal risk of a big down year. Tall order. To give the Elgins a shot, Gaithersburg, Md. financial planner Christopher Brown proposes a riskier strategy--one that involves a larger holding of stocks--than he would normally recommend. Brown and other planners typically prefer that retirees aim for a lower return and withdraw no more than 4% of their assets each year (see money.com/longview). The good news: The strategy is less risky than what the couple is doing now, and it cuts their investment expenses.

The Elgins are paying an average of 1.53% a year in fees for the 13 mutual funds in their IRAs, as well as additional trading and management costs. Brown recommends that they shift their IRA to a discount brokerage house where they'll have access to a variety of low-cost funds. That move alone will save them more than half a percentage point in fees and increase their yearly returns, all else being equal, by $1,300 or so.

More worrisome, says Brown, is that the Elgins' portfolio is far too heavily concentrated in large-cap growth stocks, which increases the risk of losses. Worse, 11% of their money is in two software stocks, Microsoft and a small company called Entrust. Since many of the Elgins' mutual funds count Microsoft as a top holding, Brown notes, the couple essentially have 21% of their portfolio in software--a risky commitment.

Brown suggests that going forward the Elgins keep $45,000, or three years' worth of withdrawals, in money-market and short-term bond funds. He would divide the remaining $205,000 among stock funds (55%), bond funds (30%) and assets such as REITs that typically diverge from the stock market's performance (15%). The equity concentration should allow the portfolio to grow. At the same time, the diversification offers protection during a downturn in any one asset class.