NEW YORK (MONEY Magazine) - Until about a year ago, Matt Jakowsky was heading for a comfortable retirement but not a particularly early one.

A sales rep for an electrical-supplies company and a self-taught market maven, he had been saving and investing for most of his 53 years and even managed to turn his girlfriend, Marilyn Chapman, on to mutual funds and asset allocation. Their joint income of $135,000 and their $700,000 in investments had them on the right track, but retirement still seemed a dozen years away.

Matt and Marilyn Jakowsky are ready for early retirement.

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The portfolio Smaller stocks plus commodities should steady their portfolio.     6%  Small-cap stocks  6%  Commodities, precious metals  8%  Midcap stocks  12%  Bonds  30%  Large-cap stocks  31%  Cash

Then Chapman, 55, came into an inheritance that more than doubled their net worth and changed their prospects considerably. Now Matt and Marilyn, who married in June, hope to quit their jobs in two to three years, swap their rent-controlled apartment in Queens, N.Y. for a home of their own in Pennsylvania and fill their days with biking, hiking and a little part-time work.

"I would still like to work with children," says Marilyn, a preschool teacher. "I could never sit home all day."

To outfit a retirement with expensive toys and extensive travel, Matt thinks they'll need an annual income that's at least equal to their current $85,000 take-home pay. With $1.6 million in their portfolio plus a $19,000 pension from Marilyn's deceased first husband, they're almost there.

Still, their portfolio can use some tuning. Most of their money is in bonds and in mutual funds that invest in large stocks. The couple need to boost their small-cap stockholdings and move some of their money into funds that invest in commodities and precious metals, which often move the opposite way from stocks and thus offer some protection in a market meltdown.

Besides the portfolio tuning, the couple are also trying to answer two big questions about their financial future: Should they pay cash for their future home, which they figure will cost about $350,000, and should they buy long-term-care insurance?

Matt investigated such policies, which cover extended stays in nursing homes and similar facilities, and was turned off by the high costs. He estimated that as an alternative to premiums that start at $7,500 a year, he and Marilyn could set aside $200,000 to use for medical care down the road.

"I don't want to give all this money to an insurance company and pray that they don't raise premiums to oblivion."

That's understandable but wrongheaded, according to Gary Ambrose, a certified financial planner in New York City. "When it comes to long-term care, $200,000 is diddly-squat," he says. "If one of them needs care for a long time, they're blown away."

Ambrose thinks the Jakowskys would need $4 million to self-insure without risking their standard of living should one of them get sick, and that they should buy long-term-care insurance soon.

That's a conservative recommendation. Other planners would say $2 million is enough and the couple can wait until they're 60 to buy insurance.

As for their portfolio, the Jakowskys could add some stability to it with investments that will protect them against inflation or an economic calamity. They thought they had that covered with 20 percent of their long-term holdings in a Fidelity "real return" fund, which invests in inflation-protected Treasuries, real estate and commodities.

Ambrose thinks that doesn't quite cut it. The managers of real-return funds, he explains, "move the investment mix around" in search of the highest returns.

Ambrose wants Matt and Marilyn to keep a permanent stake in commodities. He recommends that the couple put 6 percent of their holdings in commodities, split between the Pimco Commodity Real Return (Research) and Vanguard Precious Metals and Mining (Research) funds.

Yes, Ambrose admits, oil and gold are up big now. But this isn't a market-timing move, he says. Rather, it's long-term protection.

The same logic applies to boosting the Jakowskys' exposure to small-cap stocks, which are also up sharply of late. Ambrose suggests the couple add about $40,000 to their current $63,000 balance in Fidelity Small Cap Value (Research).

If the Jakowskys make these adjustments, Ambrose estimates, they'll be able to safely draw an annual income of $80,000 to $100,000. When they're ready, they should start by withdrawing from their taxable short-term accounts. And for every $100,000 they take from short-term investments, they should replace about 60 percent of it with long-term funds.

To pay for their house, they can borrow $200,000 and put down the rest. As long as mortgage rates remain low, their investments will likely return more than what they'll pay in interest, and they can easily handle a $200,000 debt, says Ambrose.

He recommends they get a fixed-rate loan with no prepayment penalty, in case they want to pay off the house down the road.

Next up: high-end bikes. "That's the big cost of retirement," says Matt. "You've got more time to do this stuff."

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The makeover
The problem		The plan	The payoff
1	The Jakowskys need more inflation protection.	Wary of the volatility of small stocks, they've overloaded on large and foreign stocks.	They'd prefer to self-insure for long-term care but aren't quite wealthy enough.
2	Shift money into funds that invest in commodities and precious metals.	Build and maintain small-cap and midcap positions of about $100,000 each.	Wait a few years and then shop for a reasonably priced long-term-care insurance policy.
3	If stocks perform badly or inflation rises, those funds will help stabilize the portfolio.	The change isn't big enough to really rock the boat, and in the long term, they should see a boost to performance.	If a debilitating illness strikes either or both of them, their assets will be protected.