Taking Stock- Income Inflation Mess

Dear Mr. Berko: My husband and I are 76 and in good health. We are debt-free, and our home, which we nearly sold for $328,000 in 2009, is paid for. But we unconsciously find ourselves not turning up the thermostat, buying cheaper, private-label foods, not ordering coffee at restaurants and buying less expensive wines. Our home insurance and auto insurance have zoomed. Higher prices have silently sneaked up on us, and we're nervous. We don't own any investments; we just have $116,000 in the bank, paying 0.55 percent. We receive $47,000 in income from Social Security, and we also have an annuity we bought 26 years ago and two pensions. And up until April 2010, we got more than $5,000 yearly from our CDs.

When we retired in 2004, we thought we had enough excess income to be worry-free. Now we must invest this money, and a stockbroker recommended a $100,000 variable annuity. He said that it can grow 4 percent in value each year and pay us 5 percent or $5,000 in annual income and that it can't lose money, because it's guaranteed.

Please give us your opinion, or please recommend safe dividend stocks we could buy to increase our income. We need about $3,500 more a year to be comfortable and won't ask our children, because they're having tough times back in Ohio. We know we're fortunate to have $47,000 in income, and we can reduce our spending or take money from our savings if we must, but this is becoming depressing. How can we maintain our current spending without becoming gloomy about our future and living too long?

--GA, Troy, Mich.

Dear GA: Since you folks retired in 2004, the costs of gasoline, food, cable TV, homeowners and auto insurance premiums, airline tickets, auto and household repairs, utilities, dental visits, and magazine subscriptions have increased by more than twice the advertised U.S. inflation rate. Sadly, millions of retirees have been financially sacrificed by Washington's lower rates, which haven't done diddly to help the economy but sure have helped Wall Street. So as Washington patronizingly posts fairy tale inflation numbers, the growing costs of pizza, produce, provolone, pudding, pasta, poultry and Plavix will continue to pinch your pockets and purses.

Forget the variable annuity, and dump that articulate incompetent who would sell it to you. Did you know that most annuity maintenance charges exceed 3 percent a year? So in order to grow 4 percent in principal value and pay 5 percent in annual income (total of 9 percent), this annuity must grow another 3 percent in value (a total growth of 12 percent) every year. I don't know any investments that can grow 12 percent every year.

You made the common mistake of consulting a schlock broker instead of a registered financial adviser, who is held to a higher industry standard than a brokster. Most RFAs understand how dear this money is to your comfort zone, and in most instances, they might recommend a reverse-annuity mortgage. You can discover most of what you need to know about RAMs on the Internet. But be careful, because most Internet advertisers have less conscience than a fox in a poultry farm and will rip you off faster than you can say ''hip hip hurray!'' However, a reputable information source is AARP, which has literature that is easy to understand.

Assuming your home's appraised value is $228,000, you may qualify for a monthly income of $750 tax-free (you're getting principal back), as long as you or your spouse remains in the home. Then, when the last spouse passes, the home is sold to repay the mortgagor. If it's sold for less than your cumulative payments, the mortgagor eats the difference. Neither you nor your estate is responsible for any deficiency. So a RAM can increase your income by $9,000 a year, and you get to keep $116,000 in the bank. Then take a romantic vacation to Lapland; taste a case of Chateau Lafite Rothschild's 1972; and keep your house cooler in the summer while hanging the slightly higher power bill.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@ yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Published: Thu, Oct 11, 2012