Retirement Investing: The End Game

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Another concern about TIPS? The inflation rate calculated by the government won't necessarily keep up with what Benningfield calls your "personal rate of inflation." Depending on your age, lifestyle, and location, your own costs—for transportation, energy, housing, or health care, for example—could soar much faster than costs for the average American.

You Still Need to Diversify

For Ronald Florance, director of asset allocation and strategy at Wells Fargo Private Bank, "the first and best inflation hedge is always diversification." He advocates a broad portfolio that includes bonds, stocks, and other investments.

He's not alone. Many investment professionals and financial advisers also say diversification is best even for conservative investors who might rather play it safe with a narrower strategy.

"This idea of 'going safe' in retirement doesn't really hold water," says Barry Korb, of Lighthouse Financial Planning in Potomac, Md. Conservative investing—and the resulting low returns year after year—"increases the chances of [retirees] running out of money," he says.

The key, experts say, is some balance. Unless you're hoping to profit from a rebound in stocks, equities need not be a large portion of your portfolio. Most advisors focus retirees' portfolios on Treasuries and high-quality municipal and corporate debt.

In the stock market, investors can concentrate on shares of energy or basic material companies, which should be a better hedge against inflation than other stocks, says Joe Terranova, chief alternatives strategist for Virtus Investment Partners (VRTS).

Cash, Insurance, and Other Considerations

To ease anxious nerves, investors can make sure they have plenty of cash to cover expenses in the next few years. "Look out five years to see what their cash-flow plan is going to be," says Jay Hutchins of Comprehensive Planning Associates in Lebanon, N.H. Make sure cash will be available—without dipping into long-term investments like stocks—for major home or auto purchases, for example.

In constructing this balanced portfolio, it's important to keep an eye on all your risks—not just the risks in your investments. Do you have enough insurance, especially health insurance and long-term care insurance? If you're especially wealthy, make sure your fortune is protected from litigation, Hutchins adds.

Another way to lower the risk of running out of money in retirement involves Social Security. Korb advises clients, whenever possible, to delay taking Social Security payments, which can result in a higher monthly payout. A part-time job or consulting work can also lower risk by delaying when you start dipping into retirement funds, Korb says.

The problem with all this is that it doesn't offer a simple answer to beleaguered investors. No strategy is a guaranteed success, especially when the world's financial future is so unpredictable. But, experts say, a thoughtful, diversified strategy should allow investors to keep up with inflation while also protecting against worst-case scenarios.

Steverman is a reporter for BusinessWeek's Investing channel.