The truth is, I wasn’t asking for investment advice because our retirement funds are pretty much tied up in the groups our two schools are willing to put them in. (Unfortunately, that is all we have other than the house.) The choice you make that first year can be changed, but with difficulty. We paid off our mortgage 15 years ago or so, but took out one for the garage apt. The rent on that more than meets the payments; by taking some off the principle, we hope to pay it off before retirement, when they becomes our offices.

You two might be interested in changes in the big school’s retirement plans since my husband started there in 1976.

At that time, he could choose to go with a private, vetted broker. Some years he did well, some he didn’t. But overall, he has come to trust that broker and his son during the last years. That option was eliminated a few years ago. Hires must go (as we do at the junior college) with a small number of major investment firms. The argument is obvious: small brokers led to more choices by the faculty, results could lead to envy or disaster. Of course, it also took out the valuable sense of responsibility that comes from choice.

Here is a good precis of the situation and the efforts to prevent a recurrence.

For those without the patience to get through it, here is my summary. A CDS has two parties to it. One is the seller of the CDS on the long side, the other is the buyer on the short side. Buyer and seller are on the opposite of their usual sides because a CDS contract is basically a promise that a certain bond will be good. It’s like an insurance policy: the insurance company is optimistic (long) that you won’t die soon; the buyer, being pessimistic (short), wants to be sure he gets paid if something bad happens.

A lot of investment banks were both buyers and sellers of CDS. AIG was a net seller by a lot. They were seduced by the analogy to insurance, which they understood, and took risks they did not understand at all. AIG insured mortgage-backed securities from the highest rated to subprime, plus corporate bonds of all description. Essentially, they were insuring all markets against every bad thing. Anything short of a perfect world would ruin them, and did.

If AIG had defaulted on its CDS obligations, there were a lot of holders of those contracts who would have had to default in their turn. It would not have been pretty at all. By way of contrast, Lehman’s customers met in New York on the Sunday night before the collapse. It was sort of a swap meet, where long and short sides met and used each other’s contracts to net out as close to zero as possible. This would not have worked at AIG, as the remainder that could not be offset was huge.

I’m not that far off from retirement myself. You are probably in a better situation than you realize, since you likely have very little debt at this point in life (an investor is a kind of net lender, not a borrower). If you have no mortgage, you have much less leverage in your real estate and are exposed to less risk. Unless you are using margin investing, your investment losses will not be cash losses. You can time your selling and are not forced to accept current market conditions. Stay diversified, stick to your savings and investment strategy, and cultivate serenity.

Hope this helps.

That said, I think that investors who have a portfolio of diversified investments in equities and bonds will come out fine. I think that we have a historic buying opportunity for municipal bonds. Coupons are high and taxes are sure to go up. Most of the people who will truly suffer from this fiasco are on Wall Street There are problem areas in the broader economy, but overall I think we will muddle through this one too.

If you want more personalized advice please e-mail me.

MaxedOutMama

Calculated Risk

The Big Picture

Hussman Funds

No one, repeat, no one knows what will happen. It sounds like you and I are on about the same chronological scale. I do not plan to quit working until 70 at the earliest. I hope not to retire. I anticipate that at some point the government will turn to devaluation of the currency, inflation, as the solution to its problems. This will result in many boomers ending their lives in deep poverty. The longer you work, the less likely this is to affect you so severely.

But as I say, the future is unknowable. Be prepared.

http://anglosphereunionnow.blogspot.com/2008/09/gold-standard-solution-to-our-financial.html

The Gold Standard The Solution to Our Financial Crises

In the panic that has surrounded the present crisis, the best, most honest, and easiest way to save the financial system, a return to the gold standard, has been forgotten.

The problem with the banking system at present is a lack of capital and liquidity due to the bad lending practices encouraged, and in some cases required by the federal government. With their asset prices falling, the banks are on the verge of bankruptcy.

This is a problem for all of us. If banks fail, our money in the banks will go down with them, lending will dry up and the economy will grind to a halt, millions of people will be out of work. So we have to save the banking system, but at the same time we don’t want to reward them for the part of the crises that is their fault. We want to insure that the American people can get to the money in their checking accounts.

There is a way to do this. The Federal Government, holds about 260 million ounces of gold most of which was stolen from the banking system as an emergency measure during the great depression. I propose that the gold held by the Federal Government be returned to the people it was taken from, the people and banking system of the United States.

Under my proposal, gold would be declared money of the United States at the rate of $15,000 an ounce. Then 70 percent of the gold reserves of the United States would be transferred to banks in proportion to the dollar amount of the their checking accounts, sweep accounts, and retail money funds.

However this transfer would come with strings. First the banks would be required to maintain 100% gold reserves against their checking accounts, sweep accounts, and retail money fund accounts. They would be required to pay out gold on any withdrawal from any of the forgoing types of accounts when the amount of the withdrawal exceeded $500.

The rest of the gold reserve of the United States would be used to produce, a gold, silver, and copper coinage for the United States. This would be used first to redeem all of the outstanding notes of the federal reserve and the token coinage as it now exists and to pay off as much as possible of the federal debt.

The result of this would be a banking system which could not default on its payments to depositors, though savings account holders and CD holders would have risk, but the strengthening of the books of the banks would secure most of these obligations. It would end the current crises without cost to the taxpayers of the republic. It would end the possibility of such crises in the future because it would end the fractional reserve system that introduces great instability into our otherwise healthy economic system.

I will no doubt be denounced as a “gold bug” for proposing this, but it is the paper bugs of wall street and the federal government that have brought us to this crises. It is gold that can lead us out.