Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Safe retirement investments

Dear Dr. Don,
I am a 58-year-old retiree receiving a federal pension, and I have $160,000 divided between three CDs with one maturing every six months.

I also have $23,000 in a five-year, 5-percent annuity. My problem is that every time a CD matures I'm reinvesting it at a lower interest rate, and now I'm not sure where to invest the $160,000. I have no faith in the stock market.

My husband plans on retiring in the summer of 2004. We will put a down payment on a home at that time, but we also want to keep some money invested, since the combination of our pensions and Social Security incomes will only be about $4,000 a month net. What do you suggest we do?
Sallie Safety

Dear Sallie,
A laddered CD portfolio, even if it's a stepladder like yours, stops you from making interest rate bets. You want to avoid being long and wrong, committing your money to a long-term investment only to see interest rates trend higher. You want to avoid being invested too short and earning low returns on your investments and reinvesting in lower rates every time a CD matures.

As a retiree, you want to protect both principal and purchasing power while allowing for some growth potential.

You've got almost three years until your husband's planned retirement. Why are you keeping your CDs inside of 18 months? Extending the term will improve the interest rate you can earn on these investments. Bankrate's Best Rates feature will let you know the rates available at different maturities.

Where will you live in retirement? If housing prices appreciate by 5 percent annually in that market, your retirement home will be about 16 percent more expensive three years from now. You should at least consider investing in the home now, instead of staying with your short-term CDs.

It's your money, and no one is going to make you invest in the stock market if you don't want to. Your real estate investment and other investments can provide a hedge against inflation without investing in stocks. But staying in short CDs and annuities and hoping for the best isn't the answer either.

You need to develop a financial plan and a retirement budget. Laying out your goals and your budget will let you know where things stand and will help you decide how to invest.

This calculator can help you plan your retirement budget.

If you need help, contact a fee-based certified financial planner to discuss your retirement goals. The Certified Financial Planner Board of Standards Web site can help you with how to find and interview planners in your area.

-- Posted: Nov. 19, 2001