Taking Care of Mom and Dad: An Inflation Fighting Tool

Inflation is always a concern to people living on retirement funds. It can erode the critical mass that your parents have achieved...and it can negate the advantages of annuities. But the investment markets are quick to respond to investors' needs.

One good inflation-fighting tool is the Treasury I-Bond sold by the federal government. I-Bonds are special for two reasons:

1) they are indexed to inflation, so that bondholders do not have to worry about rising prices eating into the value of their investments;

2) all interest paid by I-Bonds is tax-deferred until received by the bondholder (which makes I-Bonds perfect as retirement investments).

The problem with I-Bonds is that they don't pay as much interest as other fixed-income investments. As a result, your parents would need to buy about $625,000 in I-Bonds to generate $25,000 (or its inflation-adjusted equivalent).