Because you’ll live longer in retirement than you expect, often the best investments for a strong retirement are not costly funds and insurance products but ordinary market investments you likely used in your younger investing years.

Here are three ways to invest for a strong retirement, with the pros and cons of each:

1. Buy an annuity

Annuities can be thought of as after-the-fact pension plans. You buy them from an insurance company and the insurer takes on the risk of both market losses and your personal longevity. A lot of people like the idea of no-fuss, guaranteed income, at least until they get a year or two into the plan.

That’s about the time they realize the real cost of most annuities. Insurance companies do provide some retirees with a useful option, but most people should not buy these products at all. The fees are excessive and the returns are often far lower than one would expect from even a conservative portfolio.

2. Own a mix of stocks and bonds

Most do-it-yourself investors who understand the problems with annuities either build a stock and bond portfolio on their own or buy an income-oriented mutual fund. Building a simple portfolio is not rocket science, and there are plenty of inexpensive funds out there, such as the Vanguard Lifestrategy Funds, that can help  automate the process at a low cost.

If you go the self-managed route, be sure not to overdo it on bonds early on. Most retirees will live years longer than they assume, and they will need stocks to overcome the effects of inflation.

3. Build a portfolio and manage it cheaply

If you like the idea of a portfolio, consider building a balanced mixture of six to eight investment types, in the style of the major universities and pension funds. Rebalancing a long-term portfolio, even one that leans toward conservative, income-producing investments, is the key to lowering risk. You can create a powerful yet simple portfolio using online software and inexpensive ETFs for exposure to each asset class.

In the end, retirement investing is no different from investing at any other time in your life. You have to take a measured risk in order to set yourself up for a reasonable gain over time.

One important way to reduce the anxiety of taking on market risk is to make sure you have enough cash in the bank to cover the day-to-day costs of retirement. Start setting aside money early or, if necessary, convert a portion of your retirement money to short-term cash. If neither of these strategies is possible, then plan to keep working a while longer.

Every year you can avoid draining your retirement savings, it has a chance to compound and grow. That can make a huge difference in your choices later on, when you will need flexibility and control over your money.

(read more http://www.forbes.com/sites/mitchelltuchman/2013/12/27/best-investments-for-a-strong-retirement/#22917de05c05)