Q. Your recent series on financial planning was interesting, but I still don't know the answer in my own case: "How much is enough?" I'm always trying to find the answer. What are your thoughts on this?

---B.S., by email from 940



A. My all-time favorite answer came from a reader: "You know you are rich when more money won't change where you live, what you eat, what you drive, or who you sleep with."

I think that's a better starting and ending spot than any exercise that calculates in dollars rather than personal experience. Indeed, if you start thinking about either retirement or being "rich" in terms of dollars, it's very likely you'll never get there because the dollar target is constantly moving.

The experience target gives you power that you'll never have if you wait on the stock and bond markets. Those who really want to retire can figure out ways to live that will cut their expenses while enhancing their experience of life. Classic books on this are "Your Money or Your Life" by Joe Dominguez and Vicki Robin, and "Get a Life: You Don't Need a Million to Retire Well" by Ralph Warner. Another good read is "Rags to Retirement: Stories from people who retired well on much less than you'd think" by Gail Liberman and Alan Lavine.



Q. I've recently read your articles about avoiding variable annuities. I'm a 59-year-old male. I purchased a fixed annuity from an insurance company in 1987. After the surrender charges expired, I transferred it to a no-load variable annuity with T. Rowe Price funds. Its current value is $52,000. I've maxed out IRAs and SEP accounts. Having read all the negative editorials about these products in recent years, I'm wondering about better alternatives for this money. Should I consider taking a lump sum at 59 1/2 to avoid the 10% penalty and reinvest this money elsewhere? Or should I hold the investment?

If I hold the annuity, any suggestions on how to best liquidate it later?

---RAH, by email, from Akron, OH



A. Congratulations on having made a good choice for a 1035 exchange. The T. Rowe Price no load variable annuity has an annual mortality and expense charge of 0.55 percent. T. Rowe Price mutual funds are also available from other insurance companies with a number of insurance "wrappers" that have higher levels of insurance expense.

The Morningstar variable annuity database, for instance, shows about 20 insurance companies offering a total of 190 mutual fund sub-accounts managed by T. Rowe Price. For all 190 funds, the average insurance expense is 1.32 percent. That's quite a bit more than you are paying.

The industry average for insurance expense is 1.36 percent. With an annual expense difference of about 77 basis points, you are earning an extra $400 a year for your additional effort. Although you are paying a fraction of what sales-force-delivered products cost, it is possible to buy a variable annuity with still lower expenses.

This would require another 1035 exchange. Fidelity and Vanguard are the best known of the lowest-cost variable annuities. They have insurance expenses of 0.25 percent and 0.30 percent, respectively. The Vanguard product, which would be my choice, offers five index funds. The combination of low-cost-index funds and a low-cost annuity wrapper means that your total expenses would range from 0.44 percent to 0.61 percent, depending on which funds you chose. So the total cost would probably be lower than the 0.55 percent cost of the T. Rowe Price insurance charge, alone.

Once you've cut expenses to the bone you have two comfortable choices. You can make withdrawals on a regular basis to supplement your income from other sources. Or you can hold the account in reserve and realize your tax liabilities in a year when other sources of income are small and your tax liabilities are minor. Think of it as your retirement transition account.