Q. We have three variable annuities that have matured. We have been advised to consolidate (total of $325,000) to one variable annuity. First, how can we get out of these annuities with minimum tax consequence? If we have to start a new annuity, should we consider Fidelity or Vanguard for lowest cost? We are retired, in our-mid 70s, with zero debt, own our home and a net worth about $1.3 million. --- B.T., from Dallas, TX

A. What you do with your contracts depends on three things: your tax bracket, your other sources of income, and how your other financial assets are invested. One way to extract the most money with the least tax consequences is to take money from the contract with the smallest accumulated tax liability. Stop taking money when the added taxable income takes you out of the 15 percent tax bracket and into the 25 percent tax bracket. With luck, you could liberate the original investment at no cost and pay only 15 percent on the accumulated earnings.

For 2007 you can have $63,700 of taxable income on a joint return and still be in the 15 percent tax bracket. Since you also have personal exemptions and the standard deduction, this means your total income can be at least $83,300 before you are in the 25 percent tax bracket. More if you itemize your deductions for large charitable contributions, etc. So take enough out to get to the edge of the 25 percent bracket. There is nothing to prevent you from doing this next year as well.

Once you have exhausted the 15 percent money, consider converting a portion of the annuity money into a life annuity. In your mid-70s some amount of this should provide you with a large cash income as well as spreading the tax liability on the accumulated earnings over your single or joint life expectancy.

Finally, make a 1035 exchange to the Vanguard annuity, where your total cost will be about 60 basis points (that's 0.6 percentage points), and you can build a diversified portfolio with the low-cost funds available in the Vanguard product.

Q. I've read most of your comments regarding Life Cycle Funds and the Thrift Savings Plan and agree wholeheartedly with all of them.

Both my wife and I are 29 years old and have fully funded Roth IRAs in accordance with your Six Ways portfolio. I've been in the military for almost 7 years and plan on at least another 13. With that in mind, what kind of asset allocation would you recommend holding among the various funds available in the TSP for additional retirement money? ---C.T., by email

A. With two inflation-adjusted pensions that will replace a significant portion of your wages when you retire, you have substantially more capacity for market risk than most people. Let me explain why.

Fewer and fewer workers have defined-benefit pension plans. So they won't have a guaranteed lifetime income. Instead, they will have to replace a larger proportion of their wage earnings with income from their tax-deferred savings plans and taxable savings. The more income they have to replace that way, the more cautious they must be with the money--- so they need more in fixed-income and less in equities.

Your position is different. Less of your retirement income will need to come from tax-deferred savings. So you can take more risk. This will be particularly true if you own a house and manage to retire free of mortgage debt.

Rather than using one of the lifecycle funds, which changes its asset allocation year by year, I suggest a mixture of G fund (government securities), C fund (large common stocks), S fund (small common stocks) and I fund (international common stocks). An equal mixture of these four would be 75 percent equities and 25 percent fixed-income.