By Scott Burns

Q. I retired at 55 and am now 60. I am a single woman with modest spending needs. I owe $55,000 on my home, which is worth $175,000. My annual spending budget has been steady at $30,000, but I've felt a bit pinched this year. I probably need to up that to $35,000 for 2012. My budget does not include the cost of vehicle replacement nor does it include extravagances like a $7,000 trip. Those big ticket items must come out of savings. Other than my home, my major assets are $100,000 in a taxable Vanguard account, $35,000 in a Roth IRA and $940,000 in a Vanguard Traditional IRA.

Should I withdraw as much as possible out of my Traditional IRA each year to put my taxable income at the upper limit of the 15 percent tax bracket? My projected Social Security benefit at age 66 is $2,199 a month. At age 62, it would be $1,659.

By the way, most of the women in my family live to be 90. I have no Long Term Care Insurance. I may be married a year from now, at which time our shared financial responsibilities should be mutually beneficial. —G.M., Dallas, Texas

A. With a bit over $1 million in financial assets, well-controlled living expenses, and the freedom to take Social Security benefits when it is convenient, you could stay within the 15 percent tax bracket (particularly after you are married). You could draw on your investment accounts to sustain virtually all of your standard of living. This would allow you to defer taking Social Security benefits until age 66 or later, which would be a good bet.

Drawing from qualified accounts until you hit the 25 percent tax bracket is a good idea. You will, soon enough, be facing required minimum distributions on those accounts and it could force you into the 25 percent tax bracket with some of your income.

You also have the freedom to start Social Security benefits anytime between 62 and 66, or even 70. Your benefits are likely to be subject to taxation, so the longer you defer, the more tax efficient your finances will be. If there is some kind of market meltdown, as in a replay of 2008, then you could start taking benefits and reduce your withdrawals from your investments. That's a great position to be in, so you should savor it.

Q. I have a question regarding TIPS in an investment portfolio of people who
are quite elderly. My wife and I are in our late 80's. We are quite comfortably retired, with heavy downside protection due to a large number of single premium immediate annuities purchased a number of years ago. I'm doing some reallocating now. But if I continue to reduce equities as I age, I will have a very large percentage of my portfolio in bonds. I am wondering if adding TIPS would be a wise decision. Do TIPS furnish good inflation protection? And is there anything that might be better? —F.W., by email

A. Let me start with an alternative first. Since you appear to have more than sufficient monthly income, you may not need to continue increasing your allocation to bonds. You can simply let your portfolio continue, as is, knowing that your estate will take the risk, not your immediate standard of living.

TIPS (Treasury Inflation Protected Securities) have been a good investment for many years, including a year to date return over 10 percent. That good performance also means they are richly priced today. Recently, for instance, Bloomberg listed a TIP maturing in 5 years with a current coupon of 0.125 percent selling at a premium. This means it will provide a negative real return, even when your principal is adjusted upward for inflation. With a real return of negative 0.8 percent it would be losing that amount to inflation.

You could, of course, do worse. Over the same period a traditional Treasury obligation is priced to yield 0.92 percent, indicating that it is losing to inflation, which is running more than 3 percent a year.

TIPS provide good protection from inflation as measured by the Consumer Price Index. Whether the CPI measures your personal experience of inflation is another matter. They remain, however, the best instrument available for hedging against inflation.