Q. I am currently employed by a company offering a Simple IRA. They match the first 3%. This is great, but the only fund company they are offering is John Hancock Funds, with class A, B, or C shares, and horrendous yearly expenses. Should I invest anyway to get the match, or leave it alone and invest in a Roth on my own? All of my other retirement funds are with no-load, low-cost mutual funds, and it irritates me to pay the loads!

--- DR, New Mexico


A. Welcome to the world of small 401(k) plans. They are frequently burdened with heavy expenses and yours is no exception. If your employer didn't offer a matching contribution, your idea of investing in a Roth on your own would be the best course of action.

But your employer IS providing a match and it more than offsets the high expenses of the plan. You can understand this by working through a rough example.

Suppose your salary is $60,000 and you commit 3 percent to the Simple IRA. That means you'll put $1,800 aside and your employer will add $1,800, for a total of $3,600. The match is like a 100 percent return on your investment.

The Hancock "A" shares have a 5 percent load. This means the initial investment of $3,600 will be reduced by $180. So you've still got your $1,800 invested plus $1620 of your employers match. In effect, the commission reduces your employer match to 90 percent of the first 3 percent of your salary. That's not something to pass up.

Finally, the annual cost of the fund expense ratio varies quite a bit. Choose their "B" shares and it's likely to cost you 2 percent a year for an equity fund. But if you use their "A" shares the expense ratio will be more reasonable. Hancock Classic Value A shares, for instance, has an annual expense ratio of 1.25 percent and a 5 star rating from Morningstar. Over the last 5 years the fund has been in the top 1 percent of all large cap value funds. Hancock U.S. Global Leaders A shares, another 5 star fund, invests in large cap growth stocks, has an expense ratio of 1.27 percent, and has been in the top 17 percent of its category for the last 5 years.

Sadly, John Hancock is a pretty mediocre group so you won't find a lot of wonderful options in their mix of 135 funds. I suggest you capture the match with a 3 percent of salary contribution and hope that the funds with good track records continue to perform. As long as there is a substantial match, you'll be ahead of the game.

Unfortunately, saving 3 percent of your salary with an employer match won't accumulate to enough to retire on. If you also invested in a Roth IRA you could invest in low costs funds and hedge your risk of retiring to a higher tax bracket. While this will only affect a minority of workers, it will affect an increasing proportion of all workers over the next 10 to 40 years.


Q. I recently read the Warren Buffett article about the dangers of the trade deficit in Fortune magazine and have several questions. How serious is the problem? When will it start causing adverse consequences to our investments? What investments do we make with this problem hanging over us? Are there any good books or articles on the subject?

I don't think I will ever understand the details of the trade deficit problem but I can understand the big picture, so I don't need a long complicated article, just advice.

N.B., by e-mail from Lubbock, TX


A. Here are the basics. If a country offers attractive investment opportunities having a trade deficit isn't a problem. Foreigners who accumulate your currency simply invest in your government debt or make business investments in your country. Basically, the money sent abroad is "recycled" as new investment money. This works very nicely if the numbers aren't too large.

The reason our trade deficit has gotten so much attention is its size. It's large relative to everything. It's large when measured against our national output. It's large when measured against the ability of the rest of the world to save and invest. And it is likely to test how willing foreigners are to hold either our currency or our government bonds.

As concern about our trade deficit is compounded by concern about our government deficit, the value of our currency is falling. Oil is now firmly priced over $30 a barrel and will eventually bring inflation to domestic price levels. Already, the price of travel in Europe has inflated by about 50 percent in the last three years due to the rise of the Euro and the British Pound. Eventually, we can expect Asian producers to charge more for what they produce. They will have to offset the decline in the value of the dollar.

When that happens, we'll see a broad increase in domestic inflation.

The only reason we're not experiencing more inflation right now is that the U.S. consumer is the lynch pin for global employment. Many foreign companies and governments are willing to suffer in order to keep employment up and factories running. That, however, can't go on forever.


Q. I have retired and moved to a retirement community that I love. My Social Security and two small pensions take care of the rent on my little apartment. When I decided to retire my broker had me list all my expenses absolutly rock bottom, which come to around $700--- no movies, meals out, etc. This, plus a $300 COBRA payment would put take about $1,000 a month out of my stocks. My broker said if I took out $1,000 a month I would be totally out of money in six years. She recommended I go back to work.

I am now 70 and absolutely cannot take working full time. I have an $8/hour job for 3 hours a day, 5 days a week at a little local newspaper. This could end any time. On explaining my predicament to an attorney friend, he advised me that since I was now 70 and would never buy another home or another car, that I should start enjoying life and max my credit cards out, charging trips and nice things and paying the minimum balance each month.

All my credit cards were paid off last May before I quit my job and retired and I cannot tell you how this goes against my psyche--- but if I go through my cash then what? His argument was to save the cash and charge absolutely everything, food and all.

I recently read an article on elderly Americans using their gold cards to help finance their golden years due to shrinking portfolios, so some retirees are charging everything from groceries to gas. But what do I do after I max them out and use my cash up making minimum payments? Is there an answer to all this? Do other retirees really do this?

What is your opinion on all this?

---H.H., by email from Houston, TX


A. You aren't alone. While retirement income for senior citizens has improved quite a bit in the last fifty years, the blunt fact is that most retirees have little in assets. Social Security provides the lion's share of their income. As indicated in a recent column, the many older people are filing for personal bankruptcy. While the creditors would like to believe it is due to irresponsible or dishonest behavior--- like the suggestion from your lawyer friend--- my personal belief is that the vast majority declare bankruptcy after using every means possible to stay afloat for another month. "Every means possible" includes using the unsolicited credit card offer that appears in your mail-box.

Your lawyer friend and your children must have heard the punch line to the same joke: "only a fool would die solvent." Unfortunately, neither was very realistic about what using credit cards would do for you. With a limited income, the credit you might be extended would not be great--- certainly not enough to pay for trips, etc.

Sadly, there is no easy solution to your problem. The best I can suggest is that you find a way to enjoy (or at least tolerate) work. You might also find a way to earn more money, such as elder care work in your community. If you can earn $500 a month, it will take 12 years before you run out of money. That's a long time.


Q. A situation is developing for my parents. They do not have retirement savings and only qualify for Social Security payments of about $800 a month when they retire. Father is 61  ½ years old, a retired missionary/preacher/security guard. Mother is a 64  ½ year old librarian. They have only two assets. One is their home, which they recently refinanced ($54,000) with payments of about $467 a month (Taxes $3,000 yearly). The other is about 1,300 shares of a small bank. They are offered $250 per share. They have $25,000 of credit card debt.

I want these proceeds to allow them to retire and they agree. I would like to set up some type of vehicle to allow them to withdraw $2,500 to $3,000 monthly to live on. I would like some suggestions on what I can look into to do for them--- and if this is feasible. My mother is teary eyed at the possibility of being able to retire to spend more time with grand kids.

---C.S., by e mail from Dallas, TX


A. Let's start with an assessment of the annual income they can expect from their assets. Their bank shares are worth about $325,000, exclusive of any capital gains taxes they would have to pay. They could reduce those taxes by selling the shares over a period of time. Assuming a net of about $280,000 they could have a sustainable, inflation adjusted income of about $1,000 a month. That's a total of $1,800 when Social Security is included.

They should also pay off their $25,000 in credit card debt because it costs far more than their savings can earn.

After that they should also consider paying off their home mortgage for the same reason. That would leave them with $200,000, which could produce a monthly income of about $750.

Finally, here is a less conventional suggestion. Have them sell their house and buy a manufactured home or park model home in an RV community. Their land rend and utilities would be less than their current real estate taxes and their outlay for a new unit would be under $50,000, less if they buy used. This will cut their shelter expenses dramatically, leaving more income to spend on other items.

I will be writing more about this retirement strategy in a few months, so stay tuned.


Q. I retired in 2002. My retirement income will stabilize in 2004 with two defined benefit pensions and Social Security. My wife and I also have retirement funds in both traditional and Roth IRAs (I rolled my 401(k) to a Traditional IRA). I am considering moving the traditional IRA funds to Roth IRA accounts, each year, to the extent I can without changing our income tax bracket. I believe Roth IRA accounts will provide more retirement flexibility as we get older. Can you provide comments/recommendations on the advantages or disadvantages of this idea?

---S.G., by e-mail


A. Here's where a good financial planner can be a lot more useful than a newspaper columnist. I can tell you that doing a Roth conversion on some of your traditional IRA account assets is a good idea in principle. It gives you a hedge against higher future tax rates, it may help you avoid (or reduce) the taxation of your Social Security benefits, and it will give you greater flexibility as you get older because you won't have to deal with Required Minimum Distributions starting at age 70  ½.

A good financial planner, however, will be able to tell you if the principle translates into actions that will benefit your particular situation. It may. It may not. It depends on the size of your pension income.


Q. What is your thinking on the concept of secular markets and the Kondratiev Cycle? Do you believe we are in a secular bear market that will last 10 to 20 years? Without the ability to market time, is the individual investor unable to do better in equities than bonds over this period? What does this do to the conventional thinking of being able to withdraw 3 to 5 percent safely from retirement accounts? Can we now only hop for a safe withdrawal rate of 1 to 2 percent for those in retirement? Can you give any advice to someown within 5 years of retirement?

---E.F., by e-mail from San Antonio, TX


A. The Kondratiev Cycle idea enjoys regular periods of popularity. The basic idea is that economies move in long waves that are somewhat predictable. Personally, I believe that human beings are driven to see patterns, order, and meaning. We are driven to impose order on the chaos around us. We make our greatest mistakes as slaves to reductive ideas that give us a tranquilizing security about knowing the unknowable future.

What can we do?

Practice flexibility. Practice change. Diversify assets. Reduce investment expenses. Pay attention to personal expenses and always have a plan B, plan C, and plan D for different ways to organize your life.