When a Transfer Leads to Extra Cash

The chance of another move suggests caution.

By Jeffrey R. Kosnett, Senior Editor

From Kiplinger's Personal Finance magazine, November 2005

Robin and Howard King have a pleasant problem. Robin, who is a manager for the U.S. Postal Service, recently won a promotion that required a move from the Washington, D.C., area to St. Louis. They sold their house in Northern Virginia for $665,000 and bought a new, larger home outside St. Louis for $382,000. After adding a deck and a sunroom, Robin figures that she and Howard, a computer engineer, will have $350,000 in cash, including other nonretirement savings. They have no children and no pressing needs.

Robin says she wants to invest the money to supplement her pension and the couple's $275,000 of other retirement savings. More than $150,000 is in a fund in Robin's Thrift Savings Plan that tracks Standard & Poor's 500-stock index, so she'd prefer not to take big chances. "I want the money to grow," she says, "but I really want to protect it as much as possible."

Complicating matters are Robin's career uncertainties. In nearly 18 years with the Postal Service, she has worked in Washington (twice), Denver, Memphis and now St. Louis. If Robin were transferred to a high-cost city, she and Howard, both 39, would likely have to buy another pricey home. Moreover, because Robin can retire in seven years, she is considering a second career as a teacher.

It's difficult for the Kings to estimate their post-retirement income or their retirement-plan balances. So, despite their relative youth, Robin and Howard should be somewhat conservative with their investments. But they shouldn't be overly cautious, either.

Balanced approach. Moderate growth and a high degree of comfort are not mutually exclusive, says Andy Claybrook, a financial adviser in Franklin, Tenn. He says the Kings should keep $50,000 in no-risk cash investments for emergencies. Claybrook then suggests placing $100,000 in stock funds (his picks include Dodge & Cox International and T. Rowe Price Capital Appreciation) and $200,000 in an array of fixed-income investments, including Treasury inflation-protected securities, one- and two-year certificates of deposit, and Vanguard Intermediate-Term Tax-Exempt and Harbor Bond funds.

Phil Dyer, of Dyer Financial Advisory, in Timonium, Md., would be more aggressive. He suggests keeping $100,000 in CDs and cash. He'd then put the rest in exchange-traded funds: $75,000 in Vanguard Total Stock Market Vipers, $50,000 in iShares Dow Jones Select Dividend Index and the remainder in ETFs that invest in European, small-company, emerging-markets and utility stocks.

Either way, the Kings would have more than half of their investments in stocks. That should permit their nest egg to grow -- and allow the couple to live comfortably in their new surroundings.

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