April 12, 1998

Q. I am 62 and married with grown children. We own our house and have no debts. I have $85,000 in a 401(k), $300 in a 403(b), and my pension plan is worth $66,000. The 403(b) and 401(k) are 40 percent invested in Fidelity Contrafund, 40 percent in Fidelity Equity Income, and 20 percent in Fidelity Intermediate Bonds. I draw $637 in Social Security and my husband draws $1,200 from Social Security and $800 a month from an IRA. My problem is that I have the option to withdraw from the pension if I desire or to agree to collect $474 a month. If I take the latter, this will last for my life, but leave nothing for a beneficiary. I would like to have a monthly withdrawal equal to the $474 pension and also have a beneficiary. Is there a way to roll it over and avoid high risks?

M.S., Portland, Ore.

A. Certainly you can roll the pension over into an IRA invested in low-risk investments, but you're not likely to match the monthly payment offered by the pension plan without assuming some pretty substantial risks.

Suppose, for example, you were to roll the pension over into an IRA invested in Vanguard GNMA fund, a solid income-oriented fund that appeals to many retirees. This offers a current yield of 6.61 percent. If that return were consistent and if you were to withdraw $474 a month from the pool, it would be depleted after 21 1/4 years -- when you'll be a youngster of 83. On the other hand, if you simply withdrew the actual yield, it would amount to only $363 a month, but your principal should remain steady, available either to help you through any emergency or to become a part of your estate.

These are not easy decisions, since you have to consider your own likely longevity, and whether living better over the short run is more or less important that leaving more in your estate. My instinct would be to go with the pension and also increase your income stream by moving some of the money in the two bigger tax-deferred Fidelity accounts (Contrafund and Equity Income) into Fidelity Spartan GNMA, which will offer you an income stream similar to that offered by the Vanguard offering. Why?

First, it seems to me the prospect of turning age 83 and facing a sharply decreased income stream would be sufficiently disturbing that you should be willing to take the other course -- betting that you'll live to be 100, grinning and collecting that guaranteed pension all the way. Second, I think that having 80 percent of your retirement portfolio in stocks is dangerous -- I'd trim that to about 50 percent.