Newly Retired and Looking for Advice to Protect Investments

BY Paul Solman  September 20, 2011 at 4:30 PM EDT

Paul Solman answers questions from NewsHour viewers and web visitors on business and economic news most days on his Making Sen$e page. Here’s Tuesday’s query:

Making Sense

D. K. Mitchell: HELP!!! My husband and I abruptly retired at 57 and 59 in the last six months. We had both planned on working another six years or so. My husband is convinced the economy is about to tank and insists we put our retirement accounts into fixed or very conservative stuff. How does one evaluate danger signals in the economy and how does one hedge against financial market collapse? I don’t know how to quantify his sense of doom and gloom to make any kind of intelligent investing decisions!

Paul Solman: Involuntarily retired, I trust? Because if not, a decision to retire doesn’t make sense in light of your husband’s dark vision. I don’t know how to evaluate danger signals in the economy any better than most, but I do share a skepticism about where most Americans are economically and where they’re headed, relative to the growth and equality gains of the post-WWII past. I also know how one hedges, as best you can, against financial market collapse. You build a substantial rainy day fund — or, more accurately, perhaps, a “great flood” fund. And you certainly don’t do that by retiring early. Even in your late 50s, your human capital may be your greatest single asset. If you and your husband each earn, say, $50,000 and you both work until age 70, that would be a gross income of well over $1 million you’d be forgoing.

But let’s assume you had no choice and can’t find other work. Or that, even if you do, you still want to know how to invest in, to use your technical terminology, “very conservative stuff.”

If you read this page devoutly, you would already know my answer. For most of my family’s retirement money, I’m about as conservative an investor as you’ll find. More than half our money is in a TIPS (Treasury Inflation-Protected Security) mutual fund, as I explained here earlier this year. For the record, our total portfolio is about 55 percent TIPS fund, 13 percent foreign stock index fund, 10 percent foreign bond fund, 7 percent U.S. stock index fund, and the rest in bonds or cash in the bank, including a small bank account in Chinese yuan. In other words, we’ve tried to diversify across asset classes and currencies, to protect our current standard of living as best we can. “Smoothing our living standards”: that’s the assumption behind our favorite online retirement tool, ESPlanner.

Of course, Paul’s breakdown is for information and disclosure purposes only, not meant to be financial advice.

Editor’s Note | This graphic was updated Feb. 21, 2013 to reflect changes in Paul’s portfolio. You can see the original allocation here.

See our infographic ‘The No- So-Golden Years‘ to compare how prepared you are for retirement compared to other Americans.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._