Dear Mr. Berko:

I recently turned 65. I have a small individual retirement account, a small pension and have applied for Social Security because I will leave my job of 34 years. From these three sources, I will get about $1,800 a month, but that isn’t enough.

I’ve lived frugally all my life and I have saved hard to accumulate over $200,000 from my salary plus interest. A stock broker wants me to put this money in four U.S. government bond funds that will pay me 4.8 percent a year, and because these bonds are guaranteed by the U.S. Treasury, he says I can’t lose any money in these funds. This additional income would give me another $800 in monthly income and the resulting $2,600 would be just perfect to keep me comfortable. It may not be enough for me in seven or eight years, but I could sell my home at that time, rent and use the proceeds to bring in more money.

The U.S. bond funds are Putnam, Kemper, MFS and Lord Abbett. He tells me the best time to buy these funds is right now because interest rates have recently risen about as high as they will go. Please tell me what to do.

M.W., Erie, Pa.

Dear M.W.:

Give your broker a wince, send him to the penalty box, and if you want to avoid everlasting, excruciating financial pain don’t ever visit with that dissembling chucklehead again.

Long-term interest rates are headed higher — much higher. Some say they will exceed 9 percent by mid-2007. Now MFS, Putnam, Kemper and Lord Abbett have some jim-dandy funds that have earned some bragging rights in the past decade. But most funds are only as good as the sectors in which they invest and there’s a bear market in bonds right now. You must know that the interest rate horizon is sunless, foreboding, ill-omened and as chilling as a March rainstorm. As the national debt escalates to numbing record numbers, as consumers accelerate their personal debt loads, as the cost of oil seeps into every cranny and crevice of the economy and as “real” inflation (not Washington’s tommyrot) weighs on your wallet, it’s axiomatic that long-term rates could goose-step to the 9 percent level.

Interest rates are headed higher, much higher, and that’s a given. Today’s $10,000 investment may pay you $500 every year for 30 years. But if you wait two years to invest that $10,000, many observers believe you would earn between $800 and $900 a year. So that broker’s advice is as dangerous as a porcupine on a life raft.

It’s also axiomatic that bond prices fall as interest rates rise. If you invest $200,000 in 30-year 5 percent bonds today, and rates rise to 8 percent, your $200,000 would lose about $60,000 in the market and be worth $140,000. If rates rose to 9 percent, that $200,000 you parsimoniously pinched, skimped and stinted to collect would “deplode” to $125,000. This certainly speaks to the broker’s claim about not being able to lose money in U.S. government-guaranteed bonds. Though you can lock in a 30-year $10,000 income on those old bonds today, a two-year wait might lock in $18,000. So it might be worth the “wait” in gold.

You can’t afford to retire yet. I recommend that you continue working until you’re 67 or 68, at which time acceptable bonds might easily yield 9 percent or better. Meanwhile, many banks are becoming aggressive and issuing ridiculous and confusing hybrid certificates of deposit with hip-hop names like “bump-up, opt-out, step-up, liquids and floating rates” to capitalize on rising rates. Check the Internet and you may also find money market funds yielding 2.75 percent, three-month CDs yielding 2.5 percent and other good short-term paper. This is where you must park your money for about two years and don’t stay in any single parking place for more than six months.

In two years, you will have about $10,000 more to invest and should be able to lock in a 9 percent annual return of $18,000, which is much better than 5 percent, or $10,000 a year. It’s worth the wait, because you won’t have to consider selling your home and that much higher income should give you a swell level of comfort for the future.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.