Some problems are easily stated: No one wants to run out of money in their old age. Solving the problem isn’t so simple. Why? Spending from your nest egg doesn’t work the way building it did. If you have a bum year (like 2000, for instance) while you are accumulating money, it isn’t so bad. You’ll buy more shares this year. The long-term upward bias in equity values will work in your favor. Basically, you’ll be dollar cost averaging. Retirement isn’t like that. You withdraw money every year. You sell more shares in down years than up years. Have a really bad year – as investors had in 1973-1974 – and your portfolio can be fatally damaged. Regular withdrawals amount to “reverse” dollar cost averaging. Retirees need to find ways to avoid regular forced sales of volatile equities – whether funds or individual stocks. That’s why I introduced the Omega Portfolio in December. Given the volume of reader e-mail on the column, not to mention a busy conversation board (No. 642) on the Morningstar.com Web site, it seems a lot of people are puzzled by the idea. Much of the confusion has to do with using TIPS, Treasury Inflation Protected Securities, as the fixed-income portion of the portfolio. In fact, the basic idea – making certain that you have the money you need exactly when you need it – is a lot more important than the actual investment instruments used. So here’s another shot at the Omega Portfolio, a portfolio that is designed in time rather than asset allocation. Instead of selecting a mix of stocks and bonds by some measure of risk, you make your portfolio by matching it closely to your expected needs. You make a list of years, and estimate the income you will need for each year. You subtract the income you will have from sources such as Social Security and private pensions. Then you buy a fixed-income security that will be worth the additional cash you’ll need for each year. One way to do that, provided you are investing in a tax-deferred account, is to buy Treasury Zeros. In the current market, for instance, 10-year Treasury Zeros have a yield to maturity of 5.4 percent. A security with a $10,000 value at maturity in February 2011 can be purchased for $5,840. You buy a security for each year in the future, knowing it will mature at the cash value you will need. The further into the future you go, the less you will need to put aside today. Taken to extremes, you could build a 20-year ladder of Treasury Zeros, provided only that you had the money and desire. Each year, as a security matured, you would take the money and spend it. Think of it as a “prepaid” retirement. In fact, a more reasonable course is to build a ladder covering 10 to 15 years. Then you invest the remainder of your money in a low-cost equity index fund. Why? Because while equity returns are highly uncertain in any single year, the longer the investment period, the greater the probability your return will be more than the return on a fixed-income instrument. There have been 66 10-year periods since 1926, for instance, and the return on large equities has been more than 6 percent for 83 percent of the time. In 15-year periods, it’s more than 6 percent for 87 percent of the time; at 20 years, 95 percent of the time. If you commit no more than half of your nest egg to a 10-year ladder, the odds are that your equity fund will have at least doubled, enough to replace all the money spent, and then some. You will have done this at the cost of only 10 bond-purchase commissions and an annual index fund (or ETF) expense under 0.20 percent a year. In this portfolio, time and expense work for you, not against you. Go West Question: Am I alone? I’m 25 years old with a B.A. in English, and I make about $27,000 before taxes. I work a full-time state job and a part-time private-sector job. I’d love to move out of my mom’s home just to be independent. But I don’t think I ever will. On average, rent is $900 a month in my hometown; the average house sells for $150,000. I live in Massachusetts. I live from paycheck to paycheck. Most of my money goes to undergrad loans. I’m currently taking graduate courses, which cost $1,750 each. I pay cash and take one class per semester. If I manage to scrape up a little money, I give some to my mom and attempt to have some kind of social life with the rest. The cost of everything in my state is high. What can I do? I have many friends in the same situation. I’m hoping that within the next two years, prices will start going down.-L.J., by e-mail Answer: You’re not alone. But don’t hold your breath while waiting for prices to come down. If they do come down, most people will be afraid to buy. My first temptation was to repeat the advice of Horace Greeley, “Go west, young man.” Just make sure you don’t go so far west that you reach the coast, because life is as expensive on the West Coast as it is in the Northeast. Instead, take a close look at moving to the real West – Texas, Arizona, Colorado or Utah. This is a growth area with lots of opportunity and a need for well-educated talent. You’ll probably earn more, and your cost of living will drop. According to homefair.com, for instance, you would need only $22,654 of income as a renter in Dallas to replace your $27,000 in suburban Boston. The Homefair Web site deals with all aspects of moving from one part of the country to another. I urge you to indulge in some imaginary moves. What you are discovering is that life is full of choices. Many of them aren’t comfortable. As I see it, you’ve got three basic options: – You can simply accept the idea that you are a student, albeit a working student, and that you’ll live at home until you complete your education and get your student loans paid down. There are worse things than living at home with your mom. – You can do what multitudes of single people do and look for someone who wants to share an apartment. That could take your shelter costs down to $450 a month, maybe less. You can practice for this by keeping a shelf of your mom’s refrigerator stocked with stale beer and old pizza slices. – You can start looking for a new job somewhere else in the country. In the Southwest you can rent a completely furnished apartment, by the week, for less than $600 a month Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: scott(at)scottburns.com. Check the Web site: www.scottburns.com. Questions of general interest will be answered in future columns.