Q. My wife will retire in a few months. We will have $250,000 in her IRA Rollover account and $200,000 in a regular investment account. My wife is 66 and I'm 71. The IRA account (Not a Roth) is invested in quality dividend stocks with about a 5 percent yield. We plan to withdraw 4 percent for our income.

The investment account is invested mostly in Master Limited Partnerships and Trusts in the oil and gas and pipeline industries. The current yield is about 7 percent. About 60 percent of the account is unrealized capital gains. We plan to withdraw 5 percent for our income.

Also, we will both have Social Security of about $30,000 and we have about $30,000 in savings (reserves). We have no debt and need about $4,000 of net, after-tax, monthly income for our current needs. We are only withdrawing a part of our dividend yields and retaining our principal (at market risk). We expect this will allow us to increase our withdrawals over the next 15-20 years as needed to account for inflation. We expect to have sufficient income for the duration. Are we on a reasonable track or have I lost my mind? —W.K., Dallas, TX

A. You haven't lost your mind, but you may be creating some tax traps for yourself. Let me explain why. Since you are 71, you already need to start taking Required Minimum Distributions. These withdrawals from your retirement account start at a minimum rate slightly below 4 percent. But RMD rates rise to 5 percent by your late 70s. They continue rising as you age. Since the withdrawal rate will exceed the dividend yield, you will eventually be forced to sell stocks in a down market year, injuring your portfolio. That is one of the reasons people diversify: If you owned some fixed income you could avoid selling stocks in a bear market.

Another consequence may be to raise your tax bill significantly as you get older. Meanwhile, since most of the distributions from the Master Limited Partnerships in the taxable account are deemed return of principal, they don't add much to your current taxable income. So you save current taxes.

But this is not a free lunch. The return of principal reduces your cost basis for the MLPs, creating a future capital gain when the MLP is eventually sold. In the meantime, the complexity and frequent delay of K-1 filings will help your accountant send his children to college and reduce the spendable return on your investment. A better path would be to replace the MLPs with high dividend conventional stocks whose dividends will be taxed at only 15 percent and hope that you have real capital gains for the future due to growing retained earnings.

Having a strong income tilt to your investments is a good idea, an approach well proven in the long miserable years of the 1970s. It should not be done, however, at the expense of diversification.

Q. I would like to buy some stocks and see if I can do any good, but I don't know how to do it. Could you help me a bit? —T.T., Hendersonville, TN

A. You can start a brokerage account at a discount broker by taking a check to an office of Charles Schwab, Fidelity or TDAmeritrade near you and opening an account. This will get you access to a broad platform of investments, including exchange traded index funds, some of which can be purchased at no commission cost. From there, you'll need to decide what your investments should be.

For most people, that's the hard part.

I believe that the vast majority of people should avoid investing in individual stocks in favor of buying low-cost index funds that they can own for a long time. Basically, I'm suggesting that you own the entire market rather gamble on some tiny piece of it. A broad domestic index would be a good start, followed by a broad international index.

Don't buy individual stocks until you've done some basic reading. Even then, limit your buying of individual stocks to a small portion of your total portfolio. I limit mine, for instance, to 10 percent of family financial assets. The other 90 percent is in broadly diversified index fund portfolios. This allows me to sleep well.