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Ask Dr. Don
Bankrate.com

Late start saving for retirement

Dear Dr. Don,
I am 51 years old and, due to some early financial problems, started saving late. My wife and I have $25,000 in savings to invest and are able to save about $1,000 per month. I'm retired on Social Security disability, but my wife has about 10 years before she retires.

What can we invest in that will help us live a decent life when she retires? We only need to keep about $5,000 on hand for emergencies and we can invest everything else. Our only debt is our house note and utilities. Right now, we have $15,000 in two different money market accounts and the rest in six- and 12-month CDs, with all these accounts yielding very little interest. We're considering I bonds. Please help
Al Accumulate

Dear Al,
Series I savings bonds have two interest rate components. One is a fixed rate that is established by the Treasury every six months, on Nov. 1 and May 1, and remains the same for the life of the bond; the second component is based on changes in the inflation rate as measured by the Consumer Price Index and is announced by the Treasury on those same dates. This component can change every six months.

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When you buy a Series I savings bond, you'll know the fixed rate over the life of the investment and the inflation rate component over the first six months. This Bankrate feature tells you more about why you might want to buy Series I savings bonds before the reset on Nov. 1 or consider a Series EE savings bond instead.

It's good to keep your emergency fund in liquid investments such as a money market account. Keeping the rest of your investments in short-term CDs and money market accounts makes it hard to see the purchasing power of those investments grow over time.

Investing $1,000 a month over the next 10 years, combined with your current $20,000 in nonemergency fund savings, will help a lot in building a nest egg for retirement. Savings bonds are a reasonable place to put some of that money, but you need to consider a wider range of investments to reach your goal of a comfortable retirement.

Your ability to bounce back from negative investment returns or poor investment advice is limited, so you want to put together an investment strategy that can keep you ahead of inflation while taking on a minimal amount of risk. That's what's good about the Series I bonds and their Treasury counterpart, Treasury Inflation Protected securities.

I think it's worth your while to hire a fee-based financial planner to review your finances and your goals for retirement and help you put together a strategy for investing this money. The planner can help you maximize the probability that you will reach these goals while minimizing the risk you take on in your investments. The National Association of Personal Financial Advisors can help you find an adviser that will work with you on a fee-only basis.

-- Posted: Oct. 30, 2003

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See Also
Series I bonds: Your protection against inflation
Don't hold off on buying I bonds
Financial advice glossary
More Dr. Don stories

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