Last month, an economist in this column was quoted as saying that most retirees should have a significant portion of their portfolio in TIPS.

Since then, readers have called and written to find out more, and where to buy them.

There's a lot to like about TIPS, or Treasury Inflation-Protected Securities. They're issued by the government, so there's no credit risk. They pay out interest twice a year. And, best of all, they adjust your principal periodically to keep pace with inflation.

Inflation isn't the top worry for Federal Reserve policymakers now, but it's a concern for retirees.

"Inflation has been and always will be the primary enemy of retirement income," says Joel Ticknor, a financial planner in Reston, Va.

TIPS are a bit complicated. Basically, here's how they work:

The bonds pay a fixed-rate of interest to investors every six months. Twice a year, the principal is adjusted for inflation based upon the Consumer Price Index.

You don't get to pocket this inflation adjustment until the bond matures. But your interest payments every six months get larger over time because the fixed rate is being applied to a growing principal.

You don't pay state or local taxes on your TIPS income. But you will owe federal taxes on the interest income received annually. Not only that, you will owe federal taxes on any bump up in principal for the year -- even though you don't get this money until later.

This is not tax-friendly, which is why TIPS should be held in an IRA or other tax-sheltered account.

Of course, the traditional 10-year Treasury note is popular with retirees. And you might wonder whether you are better off buying Treasuries or TIPS.

To help decide, consider the break-even calculation that compares the interest rates on both, suggests Lowell Bennett, fixed-income strategist with Mellon Capital in San Francisco.

The yield on a 10-year Treasury is about 3.75 percent, compared with 1.5 percent for 10-year TIPS, Bennett says.

"At first blush, 1.5 percent versus 3.75, I'll take the 3.75," Lowell says. But not so fast.

The difference between the two -- 2.25 percentage points -- is the market's expectation of the annual inflation rate for the years ahead.

If the market is right, you'll come out the same whether you bought TIPS or Treasuries, Bennett says. But if inflation over time is higher than 2.25 percent, you would have been better off with TIPS. The 10-year Treasury would be the better deal if the annual inflation rate comes in lower during the decade.

Of course, you don't have to decide between one or the other, either. You can own both.

The right mix depends on your situation. Retirees whose pensions don't get a cost-of-living adjustment each year might want to invest more heavily in TIPS than others whose pension checks are increased for inflation, Ticknor says.

You can buy TIPS in 5-, 10- and 20-year terms directly from the government online at www. treasurydirect.gov. The government sells TIPS quarterly at auction. The next one is set in April. TIPS must be purchased in $1,000 increments, with a minimum purchase of $1,000. (You cannot buy TIPS directly from the government through an IRA account.)

But you don't have to buy directly from Uncle Sam. Banks and brokerages sell TIPS, too. The advantage of going through a bank or brokerage is you can buy TIPS for an IRA account.

And you can get exposure to TIPS through mutual funds and exchanged-traded funds. The funds buy TIPS and distribute interest plus the inflation increases to principal, so you don't have to wait for this money. Mutual funds may buy and sell TIPS, rather than hold them to maturity, so your principal is not guaranteed.

To suggest a topic or share tips with readers, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@ baltsun.com.