By Scott Burns

Q. I am 73 and retired, collecting Social Security and taking Required Minimum Distributions. I have no debt. I have $190,000 in a Fidelity traditional IRA (rollover from 401K), all in the Cash Reserves money market fund. What should we do? —S.K., by email

A. What you do depends on your tolerance for risk. You may not want to experience the risk of the stock market, but you should be aware that you are still at risk with all your money in cash. Recently, Fidelity Cash Reserves reported having an annualized return of 0.01 percent. That means your entire account will earn about $190 in interest. More important, it is earning less than the inflation rate. As a result, the purchasing power of your IRA is declining year by year. The Consumer Price Index for April of this year was 3.64 percent higher than it was in 2010. As I have pointed out many times, savers and retirees are paying a special “tax” to bailout the banks.

One alternative would be to keep about 20 percent of your IRA in a money market fund and invest the remainder in a balanced fund. Having this much in cash would mean you could draw down the money market fund to meet your Required Minimum Distribution for some time before having to touch the riskier balanced fund.

Fidelity Puritan fund is a managed fund with no sales commission and relatively low annual expenses of 0.61 percent. It has performed in the top 20 percent of its category over all of the preceding time periods out to 20 years. While I generally prefer index funds because they cost less, are more tax efficient, and have no manager risk, Puritan offers low cost and very consistent management— one of the reasons Morningstar has given it a superior 4 star rating for a long time.

Q. I am a 69-year-old retired teacher and have a 403(b) annuity contract that has just ended. The company wants me to put this in another variable annuity investment. They say I can take out 6 per cent a year for life, have a death benefit and access to the principal that I put in. The company guarantees that my 6 percent income rate cannot go down, but will only go up. They guarantee me easy access to my principal, even though it can go down due to my withdrawals and the possibility of the stock market going down.

I need the income, but am confused about what would be the best investment to make given todays’ circumstances. I have over $185,000 in my annuity. If I put it in a federally insured program I will only get around 1%. —J.G., by email

A. The 6 percent a year for life is some form of “living benefit” offer. It is more likely to be principal than income from your investment. Living benefits add substantially to the cost of variable annuity contracts, often bringing the total cost to over 3 percent a year. As a consequence, it is highly unlikely that your principal will ever rise enough to increase your annual income. More important, over time your principal will slowly erode as you take 6 percent and the insurance company takes 3 percent each year. The same economics also means that while your income will be constant, your purchasing power is likely to decline over time due to inflation.

A better alternative is to do a rollover to an IRA account at a low-cost, no-commission mutual fund firm and invest in a balanced mutual fund. While you will lose the 6 percent income for life guarantee, you’ll be paying far less in fees and expenses.

An extreme example is Vanguard Balanced Index fund. Admiral shares of this fund (which require an investment of at least $10,000) have an annual cost of only 0.14 percent. That means the 2.86 percent of the return that would be siphoned off by the insurance company will be available for you. Even if you move to a managed balanced fund, such as Fidelity Puritan, your expenses will be about 2.4 percent a year less. With either you won’t have the restrictions of the insurance-based product.