How Can I Preserve, Protect, and Grow My Savings?


piggy bank; via Flickr

Question: How should 65-year-olds be preserving their finances in order to make it to 90 without going into the poor house? We’ve lost a big chunk in the market; the savings we have is getting no interest. How can we preserve, protect, and grow our savings?

Paul Solman: Funny you should ask because yesterday, 09-09-09, I turned 65. Needless to say, I’ve given the matter about which you inquire some thought. And since, perhaps like you, Ms. McGaughey, I have an allergic reaction to poorhouses, I’ve been working on a retirement plan for quite some time, despite having no intention of hanging up my PBS shoes anytime soon.

First off, though, I’m not using 90 as the target for either my wife or myself. More like 100. Or even 110. Do I think either of us will get there? No (though my dad did make it to a thriving 99+; see my Father’s Day tribute to him).

But I have one overriding financial fear: that either or both my wife and I will outlive our savings. Yes, we’ll both have social security, but in fact — and consider this answer #1 to your question — neither of us has started taking it yet, precisely BECAUSE OF the live-too-long fear.

The way Social Security works is that for every year that you hold off taking benefits, the more you get per year. For folks our age, Ms. McGaughey, the increase is equal to about 8 percent for every year we wait. So my wife and I will delay taking full benefits until they stop rising; that’s at age 70. Our life expectancy, now that we’ve made it this far, is approximately the break-even point at which it pays to wait: low 80s — the point after which the higher benefits more than make up for the years you abstained.

The point is, we’ve both worked enough, and saved enough, so that we want the most insurance we can get for the years we probably won’t make but, should we live PAST our life expectancy, want to make sure we’ve got covered.

And that brings me, at long last, to your actual question: “How can we preserve, protect and grow our savings?”

I can only tell you what we do. We have almost all our financial assets in pension accounts and, as I’ve written here before, slightly more than half the money is in TIPS — Treasury Inflation-Protected Securities: Treasury bonds that pay a few percent in interest – PLUS an interest rate equal to the Consumer Price Index. (We’ve only been able to buy them in TIPS mutual funds offered by our pension managers.)

In all, about 3/4s of our financial assets are in bonds, only a quarter in stocks. Again, the reason: We’re trying to preserve what we have for our old age and I do not believe that stocks are necessarily safe in the long run. More lucrative, perhaps. But if so, that’s because they entail taking more of a risk.

Also, about 3/4s of our assets are dollar-denominated (U.S. stocks, Treasury bills and bonds, TIPS, a bank account) but 25 percent are in foreign stocks and bonds.
My investment objective has long been to sleep well at night. Even through this crisis, I did. Because of my conservative asset allocation. So how can I advise you any differently?