Using variable and equity-indexed universal life insurance policies as retirement vehicles is expensive and complicated, and probably not worth the trouble.

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Question: What do you think about VULs and EIULs as retirement plans? --Liz G., Downey, California

Answer: My short answer: not much.

That’s not to say that I couldn’t imagine some circumstance in which you might consider them. But they would be way, way, way down on my list of retirement-planning options, something I wouldn’t even contemplate until I’d thrown every possible cent into tax-advantaged plans like 401(k)s, IRAs and the like, and until I’d also funded options like low-cost index funds or tax-managed funds in taxable retirement accounts.

And even then I’d be extremely hesitant to get involved with these plans.

Before I tell you why I’m so wary of them, however, let me first explain to readers who are unfamiliar with VULs and EIULs just what they are.

Although they’re often referred to as retirement plans, in fact these are nothing more than insurance policies, specifically variable universal life (VUL) and equity indexed universal life (EIUL). Both are designed so that a portion of the premium you pay buys insurance coverage, while the rest goes into investments that build the “cash value” portion of the policy.

With a VUL, you invest in portfolios known as “subacccounts,” which are essentially the equivalent of mutual funds. Most VUL policies offer a dozen or more such subacccounts, everything from domestic and international stock funds to all sorts of bond funds.

An EIUL, on the other hand, allows you to invest a portion of your premium in an investment whose return is pegged to a benchmark such as the Standard & Poor’s 500 index. The idea is that you get the upside of stocks’ returns, but also downside protection in the form of a small guaranteed return.

So how do these policies amount to retirement plans? Well, the pitch in both cases is that you invest in the policy, your cash value builds without the drag of taxes over time and in retirement you begin withdrawing money as you need it for living expenses.

And there’s one more big lure: instead of just pulling the money from the policy, you borrow against your cash value at attractive rates. Since policy loan proceeds aren’t taxable, you have the prospect of tax-free retirement income.

All this sounds delightful, of course, but there are some major downsides to consider. First, a portion of your retirement savings is going to life insurance, and the cost of that coverage is often higher than what you would pay for a regular old term insurance policy.

Then there are a variety of marketing fees and sales commissions that cut into your return. In the case of VUL, there are the annual operating costs for the subaccounts as well as an annual fee known as the “M&E” or mortality and expense charge, all of which lower returns even more.

The investment fees are less explicit in EIUL policies, but they’re there nonetheless, built into the formulas that are used to calculate returns.

Speaking of those formulas, they’re typically so complicated and convoluted, it’s difficult for any average person to follow them, let alone understand whether or not you’re getting a good deal. (Equity-indexed annuities are similar to equity indexed universal life policies from an investment point of view.)

And both types of policies come with a big potential tax trap - namely, if you’ve borrowed from the policy and then let it lapse, the investment earnings you’ve withdrawn that were touted as tax-free become taxable. So if you’ve been using the policy for income in retirement, you could end up facing a substantial tax bill late in life when the last thing you need is to be shelling out beaucoup bucks to the IRS.

I think these policies are too expensive, too complicated and too much trouble to be worthwhile.

In my opinion, you’re better off maxing out your 401(k), investing in an IRA if you can, funding any other tax-advantaged accounts you may have access to (such as a SEP or solo 401(k) if you’ve got business, freelance or self-employment income), and then moving on to tax-efficient investments in taxable accounts, including low-cost index funds, ETFs and tax-managed funds.

If you’ve done all this and still have money to invest for retirement and are considering a VUL or EIUL, I recommend you first read “Variable Universal Life: Worth Buying Now?,” which was written by James Hunt, a former Vermont insurance commissioner now with the Consumer Federation of America.

If you’re still hot on getting one, I suggest you take the policy, the cash-value projections and all the information you can get about fees and costs and go to a financial planner who doesn’t depend on the sale of such policies for his or her livelihood for a second-opinion about using the policy for retirement income.

If after doing this, you’re confident that you understand the costs and the risks and you still want to buy such a policy, fine. But if your decision comes back to haunt you later on, don’t say you weren’t warned.

Got a question? Ask the expert.

This isn’t the first, or the last time we’ve faced economic uncertainly, but with 30 or 40 years until retirement, there’s no need to rush out of the market.

Question: I’m 28 and have my Roth IRA in a 2045 target-date retirement fund. In the last couple of months, I’ve lost almost an entire year and a half’s worth of profits. I want to keep contributing to my Roth, but I’m concerned about the possibility of recession and all that’s going on in the market. What do you think - should I try something else or just suck it up and keep investing in the same fund? –A.P., Crofton, Maryland

Answer: It’s perfectly natural for you to be anxious or even scared at times like this. Read the newspapers and you almost can’t help but come away with the impression that we’re in the midst of a total financial meltdown, an economic Armageddon, so to speak.

Combine this sense that the system is ready to come crashing down around us at any moment with the fact that the broad stock market is down about 15% from its peak last October and it’s no wonder you’ve begun second-guessing your decision to invest your Roth money in a target-retirement fund that, given your age, is probably about 90% or so invested in stocks.

But as much as I understand your urge to abandon your plan, I think it would be a mistake.

That said, I don’t think the solution is to just “suck it up.” That suggests a certain macho attitude that may have a place in certain sports, but isn’t really appropriate to investing. Ration and clear thinking are what’s needed to succeed as an investor.

Question: I’m 68, recently retired and have $250,000 to invest. I don’t know much about finances and I’m confused by all the information out there. I know I should diversify, but how do I determine where to put my money? –Grace, Yukon, Ohio

Answer: Well, you say you don’t know much about finances, but at least you know that you should diversify your $250,000 rather than plow it all into any one type of investment.

That’s a good start, especially given the precarious state of the financial markets today. People who went overboard on one asset class because it seemed like a sure thing just a couple years ago - real estate, financial stocks, whatever - are now paying the price, while people who take the same approach today with the hot investments du jour - gold and commodities come to mind - may end up paying the price tomorrow.

But as crucial as asset allocation is it’s still not as important as the factor you’re apparently overlooking: you.

That’s right, knowing all about building a well-balanced portfolio with different asset classes that work in concert with each other doesn’t mean anything if you haven’t first asked yourself what exactly you are trying to achieve by investing this money.

If this is an extra stash you probably won’t have to touch and will likely leave to your heirs, then you don’t have to worry so much about short-term losses and you may be able to invest more aggressively than is typical for someone your age.

If, on the other hand, you’re going to be drawing on this money for regular income to supplement Social Security, then you can’t afford to risk big setbacks because the combination of market losses and withdrawals can put a big dent in our portfolio’s value, raising the possibility that you could run through your two hundred and fifty grand too soon.

You’ve also got to take your emotional and psychological makeup into account. It’s one thing to say that you’re capable of riding out ups and downs in the market because you know that stocks usually generate the highest returns over the long run. But will you feel that way if the value of your holdings has dropped by 20% or 30%? Or at that point will you more likely be dumping everything you can and fleeing for the safety of CDs?

You can’t compensate too much on the side of safety, however, and just plow virtually all your money into CDs and money-market funds - unless you don’t mind the fact that the purchasing power of your money is likely to drop over the long-term after taxes and inflation.

I think that most people can sort through these issues and come up with a reasonable mix of assets that gives them enough upside potential to earn decent returns while maintaining sufficient downside protection against stomach-churning losses.

By answering a few simple questions about your risk tolerance, and how long you plan to have your money invested, for example, our Asset Allocator tool will suggest an appropriate mix of stocks and bonds. You can then go either to our Fund Screener or consult our Money 70 list of recommended mutual funds to find specific funds to fill that suggested mix.

If you’re going to be relying on your $250,000 for retirement income, I’d suggest you check out T. Rowe Price’s Retirement Income Calculator. You’ll get an estimate of how long your money is likely to last. You can then try different investment strategies and withdrawal rates to see whether your money lasts longer or goes sooner.

But, again, you’ve got to consider the “you” factor. If you feel overwhelmed when you start to deal with different investment alternatives or you’re just not confident about revving up calculators and the like, then you should probably get some professional help.

You’ve got several choices. You can hire a financial planner who can take a look at your overall situation, discuss your goals and come up with a plan. Typically, planners want an ongoing relationship, which means paying a certain percentage of your assets in fees each year (although some are willing to work on a flat-fee or hourly basis). Many large investment firms and mutual fund companies also give investment and planning advice these days.

Be careful, though. There are lots of people out there posing as advisers who are really peddling high-priced investment products or just looking to rip you off; $250,000 throws off more than enough scent to bring such opportunists and scam artists flocking to your door.

Whatever you do, don’t rush. Better to take some extra time and make a good decision that perhaps you could have made sooner than to move quickly and end up regretting that you did.

A diversified strategy and periodic readjustments will help you steer clear of market madness. Tune out all the noise and stick to the game plan.

Question: I generally review my portfolio twice a year to see if I need to make any adjustments. But given that the market has been down in recent months, I’m wondering whether I’m better off waiting until the market rebounds or sticking to my usual schedule. What do you think? –Todd M., Bryan, Ohio

Answer: I assume that when you talk about adjusting your portfolio twice a year, you mean that you’re rebalancing to bring your mix of stocks and bonds back to its original proportions.

And if that’s the case, then the strategy you’ve been following up to now makes perfect sense to me. As different investments earn different returns, your portfolio’s proportions will shift over time. So you periodically need to sell some shares of investments that have done relatively well and plow the proceeds into those that have trailed - or just funnel new money into laggards - to bring your portfolio back to its proper balance of risk vs. return.

Granted, one could argue about which of the many different rebalancing strategies available is the most effective. (I’m a member of the “once a year is enough” club myself, mostly because it’s easy and investors are more likely to stick with what’s simple.) But the most important thing is that you’re consistent - that is, you choose a method and then stick to it.

All of which is to say that I believe you ought to think twice - or maybe even three or four times - before you abandon your current strategy.

I can understand why you might have the urge to change your game plan. You’re no doubt hoping that by waiting a bit some of your battered investments will recover and you won’t have to realize losses.

But the whole point of building a mix of different types of assets based on your goals, time horizon and risk tolerance, and then rebalancing back to that blend on a regular basis is that you can’t predict the future. You don’t know when the market will fall or when it will recover. You don’t know the best time to get out of stocks and into bonds or vice versa. You don’t even know when it’s the ideal time to rebalance your portfolio, except in retrospect, of course.

So to deal with that lack of knowledge, you create a strategy, a disciplined system that can help guide you through the uncertainty.

I know that some people may see this as a head-in-the-sand approach especially given what’s been going on lately, what with major investment bank Bear Stearns getting snapped up at a fire-sale price, the Fed scrambling to keep the economy afloat and investors worldwide wondering what the next shock might be.

After all, in fast-moving and perilous times like these, don’t you have to be most nimble, most flexible, most willing to try something new?

Actually, no. It’s in times of crisis when you most need to stick to your plan. The far bigger danger in a volatile market like today’s is that you end up making a move that seems brilliant at the moment but turns out to be not so smart in the future.

Or, if you really get into the spirit of second-guessing your plan, maybe you end up making a series of such moves as you react differently to each crisis du jour.

That’s not to say you can’t ever deviate from your plan. If you find that you don’t have the stomach for risk you thought you had when you created your portfolio - it’s not unusual for investors to overestimate their appetite for volatility when the market is doing well - then maybe you need to scale back your stock holdings a bit. And if that’s the case, there’s no need to wait until you make your usual adjustment.

Similarly, if you’ve concluded after careful deliberation that some of your stocks or funds are clunkers that need to be replaced quickly, then replace them as soon as you find acceptable substitutes. You might even want to occasionally sell some holdings in taxable accounts to reap tax losses that can be used to offset other gains or even ordinary income.

But, remember, if you stray from your game plan too often and begin basing your rebalancing decisions on gut feelings about what the market may or may not do and when it might or might not do it, then you don’t really have a plan anymore. You’re just playing hunches.