Q. In a recent column, you advised J.N. to delay drawing his Social Security in order to increase the amount of Social Security he would have when he does finally hang it up. Why couldn't he go ahead and draw the Social Security at 65 and invest that money? I know he would pay taxes on the Social Security income, but he would have in the neighborhood of $1,500 a month to invest which would add up to about $90,000 in five years. Hopefully, he would invest it wisely and have some growth.

If he waited until he was 70 to begin drawing Social Security, he would draw about $1,000 more per month. It would take him 7.5 years to make up that $90,000. Am I figuring this correctly? I will be eligible for full Social Security benefits next February, which is why I have such a keen interest in this.

---R.B., by e-mail from Kingwood, TX

  

A. The primary issue here is secure monthly lifetime income in retirement. So we need to compare incomes, not make bets on catch-up times. Another reason to consider income alone is that no one knows how long he or she will live. It may take 7.5 years to "make up" that $90,000 but a typical retiring couple has a joint life expectancy of nearly 25 years.

If you simply defer taking benefits for one year, benefits will increase by 7 percent for those born in 1939-40, 7.5 percent for those born in 1941-42, and 8 percent for those born in 1943 and later. The reader was born in 1940 so his benefits will increase 7 percent for each year he defers retirement. If his benefit at full retirement age is $1,800 a month, it will increase by 7 percent if he starts taking the benefits a year later. That's an increase of $126 a month or $1,512 a year.

If he took the benefit income and paid no taxes on it he'd have $21,600 to invest in a life annuity. According to www.immediateannuity.com that would buy a lifetime income with 100 percent survivorship benefits with 20 years guaranteed of $118 a month. Note that this income would be fixed, not indexed to inflation. Also, the guarantee is for only 20 years and the joint expectancy of a couple is nearly 25 years.

Taxation of the benefits saved, of course, would reduce the amount of money to invest---and the monthly annuity income.

    

Q. I have been following the Couch Potato investing method for seven years. But I struggle with one issue. If I invest directly in a company it is my fiduciary responsibility to oversee the management of that company. I need to vote the proxy, voice dissension (when needed) and ultimately sell if I lose confidence.

With index investing this does not occur. At best an index fund should abstain from all votes. If everyone, including insiders, invested in all companies via an index, then only the insiders would control the proxies. They would be able to vote themselves a raise (or worse) whenever they so desire. How does a responsible index investor come to grips with this dilemma?

---B.A., by e-mail

  

A. Interesting question--- with several answers. First, index investing may be growing but it is a long, long way from dominating the capital markets. Second, there is little evidence to support the notion that shareholder voting influences behavior in the executive suite, particularly in the area of compensation. As a consequence, I think we have three very different alternatives.

•  We can grasp the heart of index investing and assume that human activity creates more value than it destroys and that it will be reflected in the index. This will occur regardless of the number of warts in the boardroom. History indicates this is a good bet.

•  We can narrow our field of investing to companies that pass muster with social screening. A rarity 25 years ago, there are now 202 "socially conscious" funds. The Vanguard Calvert Social Index Fund, for instance, is limited to stocks in the Calvert Social Index. The fund (ticker VCSIX) has a minimum investment of $3,000 and has an annual expense ratio of 0.25 percent. Over the last 3 years it has ranked in the top 23 percent of all large growth funds. The largest socially conscious fund is Ariel (ticker: ARGFX), a $3.4 billion fund that specializes in small cap value stocks. It has a minimum investment of only $1,000 and an expense ratio of 1.10 percent.

•  We can "tend our own gardens" and concentrate on direct personal investments that fulfill the demands of conscience. This could include rapid pay down of the mortgage on an energy efficient home, ownership of a hybrid automobile and energy efficient appliances, and direct investment in a small business.