retirement

Twin threats can destroy retirement

Don Taylorq_v2.gifDear Dr. Don,
I'm going to retire soon and I've been planning what to do with my retirement money. I asked some financial advisers and they recommended different investments. It's hard for me to choose among them: mutual funds, equities, CDs and U.S. Treasury securities.

I want the one that's risk-free or has low risk. I don't want to become Donald Trump or Bill Gates. I just want to sit in a rocking chair watching my money grow and living with the monthly interest earnings.

One of those financial advisers told me that "banks suck hidden fees and lots of commissions, which all comes out of your return," while another told me to "never look for a broker."

Can you see how hard it is for me to decide? Would you mind helping me in this matter?
-- Anthony Asking

a_v2.gifDear Anthony,
You're looking to protect the money against two things that can destroy the value of your retirement investments: risk to principal and purchasing power risk.

Risk to principal is the risk that your investments decline in value. You can protect against risk to principal by investing in U.S. Treasury securities or bank certificates of deposit insured by the Federal Insurance Deposit Corp., or FDIC. Treasury prices do change with changing interest rates, but the face value of the securities is guaranteed at maturity by the U.S. government.

Risk to purchasing power is the risk of inflation. Right now, inflation risk is relatively low, but the expectation is that it will be heating up over the next few years. If inflation is running at 3 percent and you're earning 2 percent on your investments, your investment portfolio is losing purchasing power.

You haven't given me much in the way of particulars, but if you'll be receiving Social Security benefits in retirement, those benefits will be indexed to inflation over time. If you are getting pension income, that may or may not be indexed to inflation over time.

I'd suggest mixing things up a little bit, or diversifying your retirement portfolio. You can buy U.S. Treasury securities directly from the U.S. government using a TreasuryDirect account. Consider buying some Treasury Inflation-Protected Securities -- better known as TIPS -- as part of that portfolio. Series I savings bonds are also inflation-protected.

The TreasuryDirect Web page "Comparison of TIPS and Series I Savings Bonds" explains the two securities in greater depth.

You're probably also looking at keeping some funds in deposits insured by the FDIC or the National Credit Union Share Insurance Fund, or NCUSIF. Both provide a full faith and credit pledge of the U.S. government that your insured deposits are safe. The NCUSIF is the insurance for credit union deposits, called shares. You can shop deposit rates in your market or nationwide using Bankrate's "rate search" feature.

If you're feeling a little more adventurous, consider investing part of your retirement monies in mutual funds. I'd suggest investing directly with a "no-load" family of mutual funds like Vanguard or Fidelity. My taste would run toward a stock index fund based on a broadly based stock index, but there are other choices such as hybrid funds that invest in stocks and bonds.

You've surveyed a group of financial advisers and asked them for their opinions. My advice can be one more reference point in your survey. You're smart to keep an eye on costs and expenses, but financial services professionals will get paid in some fashion for providing you investment advice.

Request a free financial planning resource kit from the Certified Financial Planner Board of Standards to learn more about finding a financial professional to work with you on a portfolio.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Dr. Don columns for additional personal finance advice. To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money."

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