A. A reverse mortgage would eliminate one debt, the line of credit, and replace it with another, the reverse mortgage. It would avoid taxes, but the interest rate on the reverse mortgage could be the same, or higher, than the interest rate on the HELOC. In addition, you would have expenses for putting the reverse mortgage in place. Basically, I don’t see that this does very much for you.

A better course would be to take a close look at your income tax return and figure out the most tax efficient way to take money out of your retirement accounts. Then pay off the credit line in the most tax efficient way. Doing it over two or three years, rather than as a lump sum, could save you a lot of taxes.

You didn’t provide any figures so I hope this example will give you an idea of how this would work. Suppose your HELOC debt is $20,000 and carries an interest rate of 4 percent. That means you have to pay $800 a year in interest. Suppose also that the cash in your retirement account is earning 1.5 percent (that’s about the highest you can earn on a 1 year CD according to www.bankrate.com. The national average is a pathetic 0.68 percent).

If you are in the 15 percent tax bracket, you’d have to take $23,529 ($20,000/0.85) from your retirement accounts to pay off the HELOC and eliminate that $800 of interest expense. That’s not bad since it now takes at least $53,333 of retirement account money to earn enough to pay the $800 interest on the HELOC.

Q. My husband and I are getting ready to retire next year. We have decided to use the bucket method for funding part of our retirement (We will have a $50,000 income before distribution from investments).  The first bucket is for immediate spending during the first 5 years (This bucket must be safe). The second bucket is for years 6 to10 (This bucket must be able to grow, have low risk.) and the third bucket is for growth (This bucket would not be tapped for at least 10 years).  What type of investments would you suggest for each bucket? —S. N., by email

A. Buckets are a convenient way to think about investment risk and time.  Here’s what I suggest:

  • Bucket 1: A Ladder of CDs or other secure interest rate investment, with the money you need in each year maturing on schedule. You could also explore CD-like annuities which often yield a bit more and yields on deposits at Credit Unions.
  • Bucket 2: A low-cost balanced fund such as Vanguard Wellington, current yield 3.1 percent according to Morningstar, or a 50/50 combination of Vanguard GNMA and Vanguard Windsor. The second choice would give you the option of selling bonds or stocks when circumstances dictated a withdrawal.
  • Bucket 3: A low cost global equity fund, such as the Vanguard Total World Stock Index. An alternative with a higher commitment to the U.S. and a small (15 percent) commitment to fixed income would be Fidelity Four-in-One Index fund.

The buckets, evenly divided, would result in a portfolio that was slightly more than 50 percent equities. It would have a highly liquid front-end for meeting current and emergency expenses. It would also be very inexpensive to manage.

The same general idea could be tailored to different platforms to further control costs. By using a major company like Schwab, Fidelity or Vanguard, you can also integrate your checking and credit card use, thus avoiding having deposits at a “too big to fail” bank.