by Scott Burns

    Q. From reading your column over the years, I know you aren't a big fan of variable annuities.  We're sorry we ever got one, too, because our returns in another IRA with American Funds have produced much better results.  So when we went for our yearly review with our broker, we were open to this suggestion:  Pull out most of the variable annuity with Hartford ($112,000) and transfer it into mutual funds (probably American).  Reason: the up-front commission is 3 ½ percent, but the management fees are .5 percent to .7 percent, whereas Hartford is charging about 2 percent per year on our fund.  My husband is 68, but we have other funds we can draw from when the mandatory distribution kicks in at 70 ½.  Is this a good idea, or should we just leave things as they are?
    ---V. S., by email from Houston

    A. That’s a very good idea. I think the American Funds are the best deal going for people who need advice about where to invest. You pay a commission for the advice, but you get low annual cost funds with better than average performance in return. The broker gets paid for his effort and you get reasonable investment choices.

    On the difference in annual expenses--- about 1.3 percent a year--- you’ll recoup the new sales commission in about 3 years.

    Q. With the euro so high, is it still a worthwhile investment to buy euros? If not, any other recommended currencies as part of a retirement portfolio's international bond portion?
    ---M.C., by email

    A. While some expect the exchange rate against the euro to run as high as $1.50 from the current $1.41, it’s starting to look a bit pricey.  So I don’t think it would be a very good investment.  Remember, it’s a one-market world now.  BMW and Mercedes, for instance, have to decide whether to raise prices in U.S. dollars or to accept smaller profit margins. Similarly, all those Brits who have taken possession of the southern coast of Spain over the last half-century are likely to find better buys in Florida these days.

    The currencies that are likely to do better than the dollar, for a long time, are the currencies in Asia. Much of Asia has pegged its currencies to the dollar to promote exports and employment. Over time, we can expect the emerging-market nations to let their currencies rise to higher levels against the dollar. Unfortunately, there are few simple and inexpensive ways to invest in this change. You should, however, check the foreign currency CDs offered by Everbank.

    Q. I'm 58 and my wife is 52.  I'm retired Air Force and receive about $2,700 monthly after taxes and survivor benefit payments.  I'm currently in the federal civil service, putting 18 percent into the Thrift Savings Plan each month.  The current balance is just short of $100,000.  My wife works full-time as an RN and is contributing about 15 percent into a 401k (current balance is $198,000).

    I expect to get a small pension (around $500 monthly) for my current job at age 62.  We also have Roth IRAs worth about $25,000 each.  We expect to get about $1,300 each from Social Security if taken at 62. 

    Our house is paid off, so there's no mortgage, and both cars are paid for.  In addition, thanks to my military retirement benefits, our medical insurance runs only $460 a year for both of us.  We're scuba divers, so we take "exotic" vacation trips every six months.  We manage to bank about $2,000 a month after expenses even though we spend liberally.  What do you recommend?
    ---L. L., by email, San Antonio, TX

    A. Unless your standard of spending is very high, you’re probably in very good shape. The question you face, along with millions of others, is “How do you know when you’re in good shape for retirement?”  It can’t be answered with a jumble of account balances, future pension check estimates, etc.
    The connection between pre-retirement and retirement isn’t built with more (or less) savings. It is built by becoming a student of how you spend your money today. Only when you know that will you have the reassurance that you’re “on track.” That’s why I recommend learning how to use Quicken Basic or its Microsoft Money equivalent.

    Suppose, for instance, that you knew your current living standard required about $7,000 a month to support, including income taxes but excluding employment taxes.  Then you would add your pensions and see how much you were in excess or short.

    If you have an excess, the problem is solved.

    If you have a shortage, the remaining money has to come from your nest egg. If about 4 percent of your nest egg, per year, won’t cover the shortage, you need to keep saving and accumulating.