SOMETIMES IT JUST FEELS AS IF YOU'LL BE BROKE

Q: My husband and I are both seniors. He is 88 and I am 70. We are very concerned about our financial situation and our portfolio. The portfolio is worth about $126,000. The interest from this money is our only income other than Social Security. On the advice of our financial manager, the money was put into the following: corporate bonds, $75,000; money market fund, $38,000; and $13,400 in stocks. (The stocks investment is down from $33,127 last year.)

Our Social Security pays us $652 and $452 per month, and the bonds yield about $444 for a total of $1,548. But our expenses are a little more than $2,000 a month, which means we are dipping into principal every month by about $500.

The only other money we can count on is the $50,000 equity we have in our home. Can you suggest a change in these investments so we will not have to dip into principal each month? We are down almost $20,000 in stocks but feel we cannot afford to sell them and take the loss. At our ages we are worried beyond belief and need some help. What do you advise? -- E.B., Dallas

A: You do have a problem, but it probably isn't as terrible as it feels. With a modest return on your investments, you won't outlive your nest egg. With a portfolio that earns 5 percent a year, for instance, you could withdraw that extra $500 a month for more than 17 years before running out of money. That's a long time. The life expectancy tables say that your husband is likely to live a bit less than five more years. You are likely to live another 15 years.

While I wonder what your adviser invested in to lose that much of your money in stocks, a portfolio with a small equity component is still a good idea even for people who are quite elderly. In addition, a few tweaks could have your portfolio yielding a bit more than 5 percent, but less than 7 percent. An increase to just 6 percent, for instance, would stretch your supply of cash from 17 years to 20 years.

There are, however, positive steps you could take to reduce your anxiety. One would be to sell your house and move to a continuing-care retirement community. This would work to end any health care expense worries, while allowing you to establish yourselves in a community while you were both healthy and most capable of becoming part of the new community.

Even if you don't do this now, learning about it would be a good step because it will make even more sense when you are single.

Q: Can you help in my decision to buy a new or newer car? Is it true that if you have the cash on hand to buy a car, you should use it rather than finance the car? I realize that financing even part of the car adds to the overall cost of the car. So should I pay cash? I'm considering buying a new or slightly used Volvo in the next year or two to replace my current 9-year-old Volvo.

Here is a summary of my financial situation: I'm 38, rent my home, have annual income of $90,000, and save about $1,000 a month from my net pay. No debts. My assets are as follows: $35,000 cash, $100,000 in my 401(k), and $50,000 in stocks. Upcoming expenditures are my daughter's college education (eight years away and partially paid for with state education funding), and I'd like to buy a home in the next 10 years. -- M.M., by e-mail

A. Let's start from the tax angle. Your e-mail indicates that you work for a large California-based software company. That means your marginal tax rate, filing as a head of household, is about 35 percent. One consequence is that your tax-adjusted cost of borrowing is a lot higher than the stated rate on a car loan.

Suppose, for instance, you could borrow at 6 percent. You'd have to earn 9.23 percent, before taxes, to cover the cost of the car loan. As a practical matter, the cost will be higher. Used car loans were recently averaging 9.07 percent, according to BankRate Monitor. The tax-adjusted cost on a 9.07 percent used car loan would be 13.95 percent.

That's a lot more than you can earn in a savings account or in a bond fund.

My vote: If you've got the cash, put it to good use and be your own banker.

(Questions about personal finance and investments may be sent to: Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas 75265; or faxed to (214) 977-8776; e-mail to scott@scottburns.com Check the Web site: "www.scottburns.com." Questions of general interest will be answered in future columns.)