September 14, 1997

Q. I am 65 and my wife is 62; we're both retired and collecting Social Security, with me working part time to supplement our income. I have a $200,000 IRA in a bank CD at 7 percent, which will hold until February 2000. This is the foundation of our retirement income, although modest amounts come from my wife's pension, T-bills, some inherited GTE stock, and periodic withdrawals from a much smaller IRA and mutual fund holdings in AARP Growth and Income and Vanguard Wellington funds. We are getting by, but our budget is very tight. Therefore, I'm looking for other options to increase income from the $200,000. Currently I'm withdrawing the $14,000 interest annually, so the principal remains constant. Should I thank my lucky stars for the no-risk 7 percent CD or should I consider moving all or part of the IRA into a moderate-risk income fund?

T.M., Boston

A. Entering this week, the national average for five-year jumbo CDs was 5.88 percent, and the highest rate in the nation was 6.75 percent. (A jumbo CD is one with a $100,000 minimum deposit; the comparable figures for smaller CDs show a national average of 5.68 percent, and a high of 6.66 percent.) Second, if you looked to a moderate-risk income fund, you'd likely find not only that your yield was lower but that you would be assuming market risk to achieve it. Probably if you searched the universe of income-oriented funds, you'd end up looking at intermediate-term government offerings. In Morningstar's tallies, this group is dominated by Ginnie Mae and other mortgage funds, and has a 12-month average yield of 6 percent. But Ginnie Maes are notoriously unstable when interest rates change, and I see no reason to swap a guaranteed 7 percent for a risk-oriented 7 percent.

So my suggestion would be to stick with the 7 percent rate, figuring that the upside of a switch to an income-producing mutual fund wouldn't be enough to outweigh the risk.