Q. Last year I read an article on the Internet that said you can retire on $22,000 a year. It mentioned that 80 percent of retirees have incomes under that amount. Much of that money comes from Social Security and pension plans but it could be generated easily on less than $300,000 in savings. So, as the article points out, it makes you wonder about the 70 percent rule that financial advisors recommend.

---C.I., by e-mail


A. The so-called 70 percent rule really depends on your pre-retirement income. According to a regular study of income replacement rates done at Georgia State University, a low-income couple ($20,000) needs to replace 85 percent of their earned income at retirement to sustain the same standard of living. A couple with income of $70,000 to $80,000 needs to replace only 76 percent of their earned income.

All this, of course, assumes that you change your life very little when you retire. In fact, I believe there is a great opportunity ahead for senior citizens. It is to rediscover--- and lead the way--- in creating a simple way of living that also happen to be less expensive. We spend a lot of money on junk. Senior citizens can carry the torch and lead us to what's worthwhile.


Q. In a recent column you said bond funds were not worth the risk because of the low yields. What about closed end bond funds? I have held ACG since 1995. It pays monthly dividends and currently yields about 12 percent. I also hold NPX, which pays about 6 percent, tax-free. I realize there are risks of depreciation if interest rates start to rise, but meanwhile a taxable 12 percent and tax-free 6 percent looks pretty good--- and worth a little risk.

---W.M., by e-mail from Katy, TX


A. Both of the funds you mention, ACM Income Fund (ACG) and Nuveen Insured Premium Income Muni 2 (NPX) are closed end funds that borrow against their portfolios, using debt leverage to increase shareholder returns. ACG was recently selling at a premium to net asset value while NPX was selling at a slight discount to net asset value.

The caution here is very simple. Because these funds can be leveraged with debt, any change in interest rates tends to be double acting. First, it increases the carry cost of the debt. This reduces the net interest income available for distribution. Second, higher interest rates tend to reduce the value of bonds in the portfolio. If income for distribution declines, value declines still more. Personally, my caution light goes on any time a closed end fund sells at a premium to net asset value.  


Q. I am 61 and work for a union with a private retirement plan (2.275 percent of base salary times years with union). I asked for an estimate of retirement income from our consultants last year and, based on last years' income, at age 65 I would receive either $3,742.16 per month (plus Social Security) or the option of taking $126,000 in cash and $2,869 per month. This current contract for staff provides a total of 21 percent in increases between February of last year and February of 2005, so the actual income will be more than the estimate.

I have no other investments, IRA's, 401k's, etc. except I own  ½ of a four-plex apartment building appraised last month for $615,000 with a mortgage of $378,000.

Would I be better off taking the higher income or would investing the cash be better? I am paying off all my credit debts on a schedule to have zero credit debt by my target of December 2005. I could live quite well on the full or the reduced retirement income plus Social Security.

---J.D., by e-mail


A. That's a tough decision. The difference between the two incomes is $873 a month ($3,742 less $2,869) or $10,476 a year. It also figures to 8.28 percent a year on the $126,000. This is about what you could earn on a balanced mutual fund--- but you couldn't take that much out each year.

I'd take the cash and a lower income. Why? First, you have limited liquidity to handle emergencies. Second, you need a reserve fund to help you offset the long-term loss of purchasing power of your fixed income. While your retirement may be generous to start, it could feel a bit pinched by the time you are 75. At that time the accumulated nest egg will be very handy.