Q. The old "test yourself for wealth" test (on your website) was way before the bubble burst. How would it look these days? I suspect the really rich would have become even richer (as not having the majority of their assets in IRAs/ordinary investments but having real estate, etc. instead). The poor, meanwhile, will have gotten even poorer. Is there any chance to get the information updated with new numbers?

--- P.A., by e-mail from Cambodia.

  

A. All that information is based on the Survey of Consumer Finances. The survey is done every three years for the Federal Reserve. Once the surveys are in, it takes Federal Reserve economists and private analysts quite a while to slice and dice the data. Analysis of the 1998 data was the basis for the "test yourself for wealth" test. (http://www.dallasnews.com/business/scottburns/alsoonline/score.html)

Information from the 2001 survey will start being available early this year with an article in the January issue of the Federal Reserve Bulletin. When published you can download the article from their website at: http://www.federalreserve.gov/pubs/bulletin.   Stay tuned.

I believe the new survey will show the opposite of what you expect because middle and upper middle income Americans have a large percentage of their net worth tied up in their homes. The continued appreciation of residential real estate, combined with rising cash holdings and appreciated bonds, will likely offset the stock market losses many middle income Americans experienced.

Remember, the median 401(k) plan balance was about $15,000 in 2001 or about one-tenth of the current median home price. Since most homes are mortgaged, the powerful leverage of home ownership can offset a serious market decline.

It's only when consumer net worth climbs over $500,000 that the value of equity holdings starts to exceed the value of home equity. Wealthy people tend to have far more of their net worth in equities than they have in home or other real estate equity.

So I think it's likely that the three-year bear market did the worst damage to the top 10 or 20 percent of the population.

And what about the poor and near poor---people who don't own stocks or houses but do own used cars? As I've commented a number of times, a good part of the population has more at stake in the used car market than in the stock market. With zero percent financing croaking the used car market, there is a high probability that lower income Americans will have taken a serious hit.

  

Q. My wife has an IRA that is totally preferred stock in several companies. Most are paying over 8 percent and have been around six years. We are both nearly 80 and only draw the minimum required. We have no debts and the income from pensions and Social security and the minimum required withdrawal is sufficient. We also have 3 small variable annuities. We are both in fairly good health so far but could live into our 90's based on ancestors. Would you suggest any changes to our investments? I am aware that you aren't very high on preferred stock or variable annuities.

Our goal is not to leave our descendents anything since they make more in 2 years than the value of our total nest egg. All we worry about is not leaving them a debt.

---R.W., by e-mail.

  

A. Preferred stock is fine as a portion of your portfolio. It's not so fine as your major investment. Your greatest risk, however, isn't interest rates or the stock market. It is long-term care. The longer you live, the greater the odds that one of you will need long term care, particularly as you get further into your eighties.

One way to achieve your goal would be to find a continuing care community and move there while you are still healthy. This will require a substantial up-front payment. It will guarantee long term care and smooth transitions from independent living to assisted living or nursing care.

Once you moved into the new community, you could turn any remaining investment money into life-annuities. This would increase your income while virtually eliminating risk. Get an idea of immediate annuity payments.

Yes, I know moving to a Continuing Care Community is a big step. But it will never be easier than today. You can learn the basics of CCCs by visiting the website of The American Association of Homes and Services for the Aging.

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Personal finance writer Scott Burns is syndicated by Universal Press. His twice weekly column appears in newspapers from Boston to Seattle. He is the Chief Investment Strategist for AssetBuilder, Inc. Readers can register at www.scottburns.com. Questions/comments can be posted directly. They can also be sent, without registration, to scott@scottburns.com. Questions of general interest will be answered in future columns and on this blog.

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