Washington Post columnist Martha M. Hamilton was online Wednesday, Jan. 2 at Noon ET to answer questions about making smart financial decisions while preparing for retirement.

She will be joined by Christopher Neal Brown of Ivy League Financial Advisors.

A transcript follows.

To read past Financial Futures columns, click here.

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Martha M. Hamilton: Happy New Year! And welcome to our chat. We're here to talk about claiming Social Security or anything else that's on you mind. I'm delighted to have Christopher Neal Brown of Ivy League Financial Advisers as my guest today. Let's get started.

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Silver Spring, Md.: Just wanted to say that I always enjoy your articles about finances in retirement and that the article about when people should start drawing Social Security to yield maximum benefits was especially helpful. Had no idea that there were people, in Boston I believe, that research this kind of thing. I think most people just start drawing their Soc. Sec. when they retire without giving thought to how their spouse's benefit will affect them.

Thank you.

washingtonpost.com: Your Golden Year For Social Security (Financial Futures, Dec. 30)

Martha M. Hamilton: How nice of you to say. I think you're right about folks deciding to draw Social Security without thinking about the long-term implications. For me, one important reason to postpone drawing SS as late as I can is inflation. SS is adjusted for inflation (and my pension isn't), so I want that cost-of-living-adjustment each year to be on the biggest base amount possible.

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College Park, Md.: My employer does not provide any sort of retirement benefits. I am interested in a savings program like a Roth IRA because of the tax benefits. The problem is that you can only put $4,000 per year into an IRA. Are there any other ways to save more than $4,000 per year with the same kind of tax benefits.

washingtonpost.com: Ideas for 401(k) Have-Nots (Financial Futures, Dec. 2, 2007)

Martha M. Hamilton: The good news is that the limit goes up to $5,000 this year ($6,000 if you're over 50, which I'm guessing you're not), and it will go up in subsequent years, although perhaps not by as much.

Christopher Neal Brown: In terms of employer sponsored programs, the 401(k) or 403(b) is the primary vehicle. You can always supplement that by using either a regular taxable account such as a brokerage account or mutual fund account that is earmarked for savings for retirement. Automatic investment programs work well here, where a certain amount is taken out of your paycheck. Variable annuities can provide the tax-deferred savings advantages of an 401(k) without the tax-deductibility, but make sure you understand the fees, both internal, and surrender charges, before you buy them, as they tend to be loaded with hidden costs.

Martha M. Hamilton: Variable annuities are incredibly hard to understand and to compare one to another.

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Burke, Va.: To protect estate assets, what are some financial alternatives when one of the two spouses has been turned down by the insurer for long term care insurance? For reasons of "health history", the insurer rejected the spouse who is the major family "breadwinner". All estate assets are now jointly owned.

Christopher Neal Brown: You probably need to consult an elder care attorney for these issues. Often times, a good stategy is for spouses to gift assets to each other (there is not estate tax implication here) for Medicaid planning purposes. Assets have to be carefully titled, and there are so-called "lookback rules"--it is complicated, so I suggest consulting a good elder law attorney.

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Fairfax, Va.: Is there anyway to have a good investment plan that avoids paying large fees either up front or even more later on?

Christopher Neal Brown: I suspect you are referring to "sales loads" that are charged on the front end ("A" shares) or the back end ("C" Shares) of mutual fund sales.

I suggest that you seek out and find a good "Fee-Only" Financial Advisor. These individuals do not work with commission-based products and can put together a good investment plan for you. More important, they will be a "financial fiduciary" for you because they will provide objective advice without the conflict of interest from product sales.

You can find one in your area by going to www.napfa.org or calling the National Association of Personal Financial Advisors at 800-366-2732.

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Fairfax, Va.: What are the main disadvantages of purchasing annuities and what are better invewstment alternatives?

washingtonpost.com: Here are two of Martha Hamilton's columns on annuities: Playing It Too Safe (Dec. 10, 2006) and Live Long and Prosper (Aug. 12, 2007)

Martha M. Hamilton: The advantage of an annuity is that you receive payments for life and don't have to fear outliving your money. Most annuities are not indexed for inflation however. The good news is that the industry is finally beginning to innovate with new products such as the longevity annuity which can offer better payouts. I think it's a good idea to annuitize at least part of your retirement income. The counter argument would be that you can do better in the market, and that market-based returns will protect against inflation. But, remember, not everyone who is in the market makes money. If you're a woman, you do better to take an annuity offered by your employer (if your employer gives you that choice). The reason is that annuities offered through employer retirement plans are required by law to be gender neutral, unlike commercial annuities which pay less to women because of their anticipated longer lives. Chris, what have I left out?

Christopher Neal Brown: Most investment vehicles have some purpose, you just have to be sure if the vehicle matches what you are trying to do.

First, understand the difference between immediate annuities and deferred annuities. With an immediate annuity, you generally give an insurance company a lump sum and they give you a stream of income off of it. With a deferred annuity (the most popular form being a variable annuity), you accumulate investment within a tax-deferred vehicle which has certain rules about distributions, tax-effects, fees. etc. What most people don't realize is that you can always purchase an immediate annuity without being in a deferrred annuity, and you can take a lump sum from a deferred annuity without having to "annuitize your distributon".

Confused? Most people are with annuities. On top of that you have to be careful about the expenses--variable annuities are among some of the highest-commission investment vehicles out there.

You might consider annuitizing a portfolio if you 1) are conservative, 2) cannot manage the money yourself or hire someone to do it for you and 3) are not concerned about flexibility in payouts or leaving a lump sum to someone. If you don't meet these criteria, then annuities may not be for you.

Martha M. Hamilton: I should add that I was talking about single premium immediate annuities.

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washingtonpost.com: Two Options to Fight Off Inflation (Financial Futures, Dec. 16)

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Riva, Md.: I am 61 yrs old and would like to retire in three yrs. I owe $155,000 on my 4.5%/15 yr mortgage loan. My wife and I are going to save $4,000 per month to acheive this goal. My question is, should I apply the 4K directly to the principle of the mortgage, invest it in an existing mutual fund account for three yrs or save the 4K in an interesting bearing ck'ing account (4.10 APY) for three years ?

Christopher Neal Brown: Without running the numbers and understanding what your retirement savings looks like, this is not easy to answer.

In general, though, because the interest rate of your mortgage is very low, I probably would not pay that off early and apply the $4,000 into in investment plan. You should make sure you and your wife are maxing out on your savings plan at work (you can contribute $20,500 each to it) and make sure your investments match your goals and risk criteria and most importantly, are properly diversified.

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Baltimore Md.: Hello. I will be 60 next month, am employed full time and have about $375K in a 401K and IRAs, plus about $300K in CDs, online savings and tax free bonds outside of my retirement funds. That's a pretty good situation, so I am wondering what your advice would be re some money I will be coming into due to sale of family property and distribution of an estate.

If all goes well, my share should total about $200K. My inclination is to keep this in something super safe (CDs, inflation protected government bonds) as a hedge against market declines. Incidentally, I am single with no dependants, if that factors into your advice.

And, like almost everyone else, I would like to retire earlier than later. I hope perhaps at 63. Thanks.

Martha M. Hamilton: I like I Bonds as a hedge against inflation and market downturns.

Christopher Neal Brown: You need to figure out what your cash flow needs are going to be in retirement--i.e., how much will need to come out of your retirement savings each year and then use the incoming assets to structure your portfolio accordingly.

Retirement places a "dual stress" on savings--cash flow for short term needs and growth to offset the effects of inflation. If your allocation is too conservative, you may outlive your money; if it is too aggressive, you may feel too much pain from the market's volatility.

This issue may be too important to try to do it yourself. I might suggest that you find a good financial advisor (I highly suggest locating a Fee-Only Advisor at www.napfa.org) to help you with this. Most people cannot afford to make a major mistake at this time in their lives. Good luck.

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Anonymous: Why won't someone stand up for the "notch babies" ? Guess they figure we'll just die out.

Christopher Neal Brown: I am not familiar with the term "notch babies".

Martha M. Hamilton: Here's what the AARP says. I'm guessing that Anonymous doesn't share the organization's conclusions, though:

The "notch" is a term used by some people to describe Social Security benefits received by those born from 1917 through 1921. Some people in this group believe that they are not getting fair Social Security benefits when compared with those born before or after them.

The History Behind the "Notch"

In 1972, Congress increased Social Security benefits and provided an annual Cost of Living Adjustment (COLA). As a result, those born from 1912 through 1916 received extra benefits.

Congress corrected this error five years later, by gradually adjusting benefit levels (replacement rates) for those born after 1916. If no correction had been made, the system would have gone bankrupt and been unable to pay any benefits.

In order to avoid an abrupt change for those about to retire, Congress phased-in a new benefit formula for those born from 1917 through 1921. This phase-in formula only applies to the 1917-1921 group. Everyone born after 1921 has their benefits calculated in the same way. Unfortunately, some of those in the 1917-1921 group have been led to believe that they are being cheated out of Social Security benefits and want a change in law so that they can get extra benefits.

A special Commission on the Social Security Notch was appointed in 1994 to review this controversial subject. The Commission's central finding was that benefits paid to those in the "notch" years are equitable, and no new legislation is needed. Their report also notes that Congress acted responsibly and appropriately in 1977 when it adjusted the flawed benefit formula.

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washingtonpost.com: Two Options to Fight Off Inflation (Financial Futures, Dec. 16)

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Washington, D.C.: My wife's company doesn't match her 401(k) and that policy is not likely to change anytime soon. Does it still make sense to put in maximum allowed?

Christopher Neal Brown: All things being equal, the answer is yes. You still get a tax deduction for your contributions, and the investments can grow tax-deferred until you withdraw. You might want to check and see if you are eligible to contibute to a "Roth IRA" outside of your 401(k) plan. You don't get a deduction for the contributions, but they grow tax free.

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Bethesda, Md.: I'm a fed govt. employee, and my TSP (401k-like) fund is invested in one of the "P" plans, which is a distribution of the C,F,G,S and I funds. This is all good, but I would like to balance these dollar-based investments (including the I fund), with some Euro-based retirement investments.

My wife is not a govt. employee, and I believe that she can select from a wide variety of Fidelity funds. I'm thinking of investing 50% of her retirement in a Euro-based stock fund. Do you have any suggestions as to how I might identify an appropriate fund?

Does this approach seem reasonable for a couple in their early forties?

Christopher Neal Brown: I think it is important to diversify your portfolio by owning both foreign stocks and foreign bonds. I might suggest that you do research on www.morningstar.com for good foreign stock and bond funds. In particular, look for funds that do not hedge their investment against the U.S. Dollar--this will give you some added diversification and higher performance if the dollar continues to slide. Be careful with the allocation percentage--an appropriate allocation for the entire portfolio (yours and hers) is probably 20-40% of your stock allocation--which might only mean 10-20% of your entire portfolio. Good luck with this.

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Arlington, Va.: In general, how do you feel emerging markets will perform in the next year? I think it will be a safer place to invest some retirement money while the U.S. works through the housing crisis and probable recession. But recent discussions with friends have told me some think otherwise?

Christopher Neal Brown: Be careful in chasing "hot" markets or sectors. Many people have gotten burned in these areas. Emerging markets were up well over 30% in 2007, which means that the asset class may very well be overvalued and you may be buying in at the top. In general, I recommend limiting your investment in emerging markets to 3% (at the low end) to 10% (at the high end) of your total portfolio. They do have a place in a well diversified, long-term strategy, but are extremely volatile.

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Columbia, Md.: I hope you will post this if you haven't posted something similar already: I have read so many articles about when to start receiving SS retirement benefits...but no article I've ever read has included the crucial fact that every Social Security Administration field office will run the numbers for the retirement benefit applicant when they make an appointment and go in. Every person should make that appointment and go in to talk to an SSA claims rep 4 months BEFORE their 62nd birthday. SSA will calculate out the benefits at various ages and tell you how long it will take (how long you have to live) before you will "benefit" from delaying your benefits.

Yes, I do work for SSA. Please help get the word out. You don't have to rely on internet calculators. Let the experts tell you about your options.

Christopher Neal Brown: Thanks for the information!

Martha M. Hamilton: I'll add my thanks, too. I have heard from readers since Sunday's column, however, that they received incorrect information when they checked with their SSA office. I expect this is the exception, not the rule, however.

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Chevy Chase, Md.: One item that is overlooked in the discussion of when to take Social Security is the effect on federal employees under FERS. These employees can retire at 55-57 with 30 years service and begin receiving "social security" (actually a supplement paid by OPM that approximates the amount of Social Security that the employee will be entitled to receive at age 62 based solely on his or her federal service). This supplement ends at age 62 - whether or not the retiree actually applies for Social Security benefits at that time. Consequently, if the retiree wants to wait for full Social Security eligibility, his or her retirement income will drop precipitiously at age 62 when OPM ceases to pay that benefit. These employees are almost forced to choose early Social Security at age 62 as a result.

Martha M. Hamilton: I've had a high volume of email from readers asking about the interplay of FERS and Social Security. I wasn't aware of this further complication which I hope to address i a future column.

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Annandale, Va.: My employer got bought out and buried in the new employee handbook is the news that they will not decide on matching 401K contributions until the end of each calendar year preventing us from determining what the employer match will be when we decide how much to contribute at the beginning of the year. Is this usual for a company? I think it stinks -- how am I to plan my contributions if I don't know what the match will be when I make them?

Christopher Neal Brown: Some 401(k) matches are "profit sharing" matches which means that the employer matches based on the profitiability of the company--and they may not know that until the end of the year. This is very common for smaller companies and some times the match is made in a lump sum rather than throughout the year.

You should look at the 401(k) as a tax-deferred savings vehicle for you and not as an "entitlement" which you are due from your employer in terms of the matching contribution. You should also be aware that certain laws (ERISA, namely) prevent the employer from discriminating again employees in terms of matching for them vs. the owners of the company--so there is an incentive for the owners of the company to turn a profit and provide some matching--or they can't make a contribution into their own accounts.

I hope this helps.

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Lewes, Del.: What do you tell people who will not be able to retire at all, ever, due to not enough savings/no employer retirement boost, about taking Soc Sec? At what age can we take it all w/o losing out b/c we are still working?

Martha M. Hamilton: It seems to me you would want to postpone claiming Social Security, both because it might increase your taxes if you are above the income level for paying taxes on part of your benefit, and because your benefit might increase as you continue working, and because you want it to be as high as possible if you are forced to stop working.

Christopher Neal Brown: I would agree with Martha. In general, if you are still working, it may make sense to postpone your Social Security payments because if you take them while you are still working, they will be taxed at the highest rate.

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Prescott, Ariz.: Many right-wingers hate Social Security because they equate a safety net to socialism. Is there any data on the percentage of these folks that forego taking SS benefits as a matter of their principles?

Martha M. Hamilton: Hah! Good question. It's insurance, not welfare, and it's made a huge difference in reducing the number of elderly poor in the country. Having said that, though, I have taken the tax deduction for a mortgage on a second home, even though I don't believe it's good policy. As long as it's allowable, I don't forego the benefit. So maybe it's the same for those who may not believe Social Security is good policy: as long as it's the law of the land, they're entitled.

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Financial help?: How do you know if you need a financial advisor? I am 36, single and have always managed my own money ($140K in 401(k) and IRA, $50K in brokerage account and $10K in savings with the only debt being $250K left on my mortgage loan). However, I wonder if I'm missing out on valuable advice by not using a financial advisor. What kind of things should I be going to an advisor for?

Christopher Neal Brown: A good financial advisor will first listen to your goals and concerns and pinpoint specific areas which you want addressed. The topic of investment is typically a popular topic--along with issues such as tax minization, retirement planning, estate planning, insurance planning and education funding.

Since you are single, you may have have concerns in many of these areas other than investments. With investments, a good advisor will analyze your current portfolio to see if it is allocated correctly and suggest ways of improving it, especially through properly diversifying the portfolio.

Please make sure you select a good advisor--through a referral from a friend, family member or business colleague and make sure you know how they are compensated. You should interview 2-3 advisors to find one who you are comfortable with--I recommend that at least one of these be a "Fee-Only" Advisor which you can find at www.napfa.org.

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Oviedo, Fla.: Hi - Happy New Year Martha. Love your work...Really having a hard time guestimating future dollar value. I want $4k/month in today's dollars in retirement, which will be in 15 years or so. How do I know what that number is? $4k/month would be fine now but into my 70s and 80s that might be grocery/utilities only. (I'm 49.) Thanks.

Martha M. Hamilton: I'm glad you like the column. Thanks. Here's an inflation calculator that allows you to figure out what money will be worth in the future if you assume a certain rate of inflation. Ignore the fact that it is in pounds, not dollars. http://www.ft.com/yourmoney/tools/inflation

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Re: Lewes, Del.: Regarding the questioner who asked about when to start taking Social Security if you never retire, you didn't actually answer the question. Isn't there an age (70?) at which you won't increase your benefit by delaying your receipt of SS benefits(other than by increasing the average salary that it's based on). And isn't there an age (again, 70?) at which your benefits will no longer be reduced because you have earned income?

Martha M. Hamilton: Your benefits don't increase beyond age 70.

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Martha M. Hamilton: Chris, what is the single best piece of advice you can give people about how to spend their money in retirement? I think many folks are too conservative, while others, obviously, too profligate.

Christopher Neal Brown: I think the best single piece of advice is to have a good idea of how much needs to come out of your retirement savings on a yearly basis. Most of retirement planning is pretty straightforward--determine how much you want or need to spend and how much your income is through pensions and Social Security. The difference is what I call "the gap" and that needs to come out of your savings on an annual basis.

In an ideal world, you would keep 3-6 years of that "gap" in stable investments--CDs and money market funds, for example and put the rest in a diversified portfolio which can grow and offset the effect of inflation. Then every year or two you can "reload" your short term savings. This is a strategy that allows retirees to live their lives without worrying too much about short-term volatility which no one can predict. Also, ideally, your total annual withdrawals would be no more than 4-5% or your portfolio.

A second piece of advice would be to delay taking money from your IRA as long as possible. You should withdraw your taxable money first before your tap into your IRA. Of course, you need to start taking minimum distributions from your IRA when you reach 70 1/2.

Martha M. Hamilton: Excellent. Thank you.

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Baltimore, Md.: My company has just offered us the option of a Roth 401(k). My husband and I both currently contribute the max to our plans, and some additional company match and profit-sharing contributions up our annual pre-tax savings even more.

As of now, our 401(k)s represent almost all of our retirement savings (I'd love to add a Roth IRA, but we're above the income cutoffs). Because everything is in a pre-tax account, I am considering changing my contributions over to the new Roth 401(k) (I'd hate to retire in another 20 years only to discover that my tax bracket is now 50%). But at the same time, we are in a fairly high tax bracket now -- we're phasing out deductions, and trigger AMT every year -- so adding that money back to our current taxable income will mean a pretty significant addition to our current tax bill. Any advice on how to figure out whether this is a good idea? Or do I just make my best WAG on what future tax rates will be?

Christopher Neal Brown: In general I am in favor of all Roth options because of the tax-free growth and withdrawal--even if it means paying higher taxes now. I would suggest that you have your accountant run some numbers to see if it makes sense for you to contribute--to the Roth 401(k).

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Martha M. Hamilton: Lots of great questions today. If we didn't get to yours, try us again in two weeks. And you can email me at hamiltonm@washpost.com if you have suggestions for future columns. Thanks for joining us, and special thanks to Chris Brown for adding his expertise.

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