A couple of months ago, Sharla Jessop of Salt Lake-based Smedley Financial Services helped me answer a reader's question about investing during retirement. She stressed the importance of saving "pockets" of money for different times.

I liked her advice, but I don't think I allowed her to go as in-depth as I should have. Thanks to a new question, I'm going to revisit the issue today.

James, age 70, sent me an e-mail in late March, asking how best to invest his money for the short term.

"Everyone is giving advice of what to do for the long term, but what about those of us who need some money to live on? The government is doing everything it can to lower interest rates, which is really hard on retired individuals," he wrote.

"Right now about all you can get on (certificates of deposit) is about 2.5 percent to 3 percent. Investing for the short term in the market is suicide, and the same for real estate. I would like very much to hear your opinion on this problem."

I called Sharla again, and she says this is a question she hears often from her own clients. She recommends, as always, that people break down their income needs into different phases of retirement, and then apply a risk/return ratio to each of those phases.

"It isn't long term or short term," she says. "It's the long term and the short term and everything in between that you really have to prepare for."

The first thing James needs to do is decide how much income he needs to live on. That will be the basis of his planning for the phases to come.

For example, phase one might cover his income needs over the next five years, Sharla says. During that time, the return on a retired person's money is less important than the return of the money. Those funds need to be somewhere "very safe and very liquid," she says, such as in an immediate annuity or short-term CD.

Phase two would look six to 10 years in the future. You can choose investments that are a bit more risky, shooting for a 3 percent to 4 percent return, Sharla says, maybe using annuities or bonds.

"Typically, almost 50 percent of your assets would be in phase one and phase two," she says.

Phase three would look 11 to 15 years in the future, with more aggressive investments and a goal of a 5 percent to 7 percent return. Phase four, 16 to 20 years out, you would want an 8 percent return per year average. And phase five would be 21-plus years away, aiming for a higher return using more equities.

"With that money, you can be aggressive, because you're not going to need it for a long period of time," Sharla says. You can afford to roll with the market's ups and downs.