Q. I am an 85-year old widow. I recently sold my house and am moving into an independent living facility, which will cost $2,000 per month. From the sale of my house, money market funds, value of equities, life insurance proceeds and cash, my total worth is close to $270,000.

My Social Security benefits are $1,450 a month. My supplemental health insurance from AARP costs $142 a month.

My banker suggested a fixed annuity with the American General Financial Group, which for a one-time investment of $100,000 will give me $946 a month for 10 years. After that the $100,000 will be depleted. He said there would be no fees for this.

This amount plus Social Security will take care of my needs at present, but I am concerned about inflation and the possibility of higher future assisted living or nursing home expenses. Do you have any suggestions on how to invest the $270,000?

---G.N., by e-mail

  

A. There may be some communication lapses here. With a visit to www.immediateannuity.com, a website that offers immediate annuities from a variety of insurance companies, I found that an 85 year old woman (or anyone else) can convert $100,000 into ten years of monthly payments of $1,000, after which the sum would be exhausted. That's $54 a month better than your banker is offering.

You could also get a lifetime annuity of $877 a month, with 10 years certain for the same investment. (The "10 years certain" means that if you die before 10 years, your beneficiary will receive the remaining payments.   If you live longer than 10 years you will receive payments of $877 a month until you die but there would be nothing for your beneficiary.)

From the same site I also learned that you could get $946 a month for 10 years with a commitment of $94,600. That's a saving of $5,400 from what your banker is offering. To put his offer in perspective, it calculates to a return of 2.55 percent on your money when 5 year Treasury obligations are yielding 2.86 percent. Bank CDs of the same maturity are yielding 3.38 percent. Basically, the insurance company isn't paying much for your long-term deposit.

Which brings me to "fees."

Unlike a variable annuity, an immediate annuity has no visible fees. The insurance company, however, is compensating the banker for making the sale. His compensation is called a sales commission. The size of the commission may influence what he offers. The insurance company will also invest the money, as they should, for a higher return because they expect to make some money after paying you and the salesman.

Some sales people like to tell clients that their investment costs "nothing" because the insurance company pays the sales person. That's garbage. Everything comes from YOUR money.

The good news here is that you have a lot of alternatives. You could, for instance, start putting your money in I Savings Bonds. While you are limited to investing $30,000 a year, these bonds currently yield 1.1 percent plus the rate of inflation, or 4.66 percent. The yield is tax deferred until the bonds are redeemed.

  

Q. I'm 72. My wife and I are managing to get buy on Social Security and the income from an ING variable annuity. The annuity income is 40 percent of where it started but we make it and it meets our need for minimum distribution. ING is encouraging us to purchase a large "single premium immediate annuity" in another tax deferred account.

I don't see the advantage. We don't need the income. If we did, or if we needed to increase our required withdrawal amount, we could withdraw a lump sum.

Am I missing something? Their argument is that I should "run it through the tax winger now." Frankly avoiding taxes is not a big thing with me. Paying taxes means you have money, which beats being broke.

Would another annuity be any better security than the existing account?

---F.C., by e-mail from Dallas

  

A. The only thing you are missing is the need to make a sales commission. If you were short of income buying an immediate annuity would be a reasonable way to get spendable cash without undue investment risk. But you don't need it. Furthermore, you can buy an immediate annuity at any time. The older you are when you make the purchase, the higher the income rate--- so there is a payoff for delay.

Websites:

Explore Immediate Annuity rates

Read about I Savings Bond rates