Q. My wife and I are conservative investors. We have two annuities we bought through a manager eight years ago. They have "matured" and are drawing a bit over 3 percent interest. One annuity has $136,000. Another has $57,000. Our taxable surrender amounts would be $42,000. My age is 73.

Question: In order to remain as safely invested, could you recommend another investment that would offer the same "security" but gain more return?

---J.H., by e-mail from Dallas


A. Sorry, there are no "gee whiz" options here that will give you a dramatic increase in yield. Interest rates have risen over the last year, but they are still pretty low. You have two options. First, you can close out the contracts and pay taxes on $42,000 of accumulated taxable income. That sounds terrible but assuming a 25 to 28 percent tax bracket, you could get the same income on your remaining money if you can increase your current yield from 3.00 percent to 3.20 percent. That's a yield increase of less than 10 percent. It's also well below the current 3.4 percent yield on a 2-year Treasury obligation.

One of the safest things you could do is build a 5-year Treasury ladder. Currently, yields range from 3.16 percent on one-year Treasuries to 3.86 on 5-year Treasuries. A laddered portfolio would average about 3.55 percent in yield. Over time, you would enjoy the yield of a 5-year Treasury while your portfolio had an average maturity of 2.5 years. In addition, one obligation would mature every year, reducing your risk in event of a need for cash.

Another option would be to put as much of the money as possible into I Savings Bonds which currently yield 3.67 percent, tax deferred. Since these bonds are indexed to inflation, there is a good chance you'll earn more as inflation rises.

The second option is to do a 1035 exchange to another annuity product. This will allow you to change investments while avoiding the need to pay taxes on your accumulated income. If you do that you could exchange your current annuities for a ladder of CD type annuities. This would create new early redemption penalties but it might increase your yield somewhat. You can get an idea of current CD-type annuity yields by visiting www.annuityadvantage.com


Q. My wife and I are both doctors. We have about $280,000 in student debt ($70,000 at 3 percent, $80,000 at 7-8 percent, the remainder at 5-6 percent). We moved back to my wives' hometown with the idea of living with her parents and paying off our debt as soon as possible.

My wife wants to aggressively pay off debt, starting with the highest rates, rent a house for a few years, and then kick money into retirement plans when we are debt free. Her argument is to pay off debt that is at a known rate versus a possible loss on investing in index funds.

I would like to maximize our retirement contributions each year and still pay $50,000 to $60,000 towards debt repayment. We both have about $25,000 each in retirement plans now.

We have both agreed to try and not fit the "mold" of two doctors with the purchase of a huge house and two expensive cars.

---B.N., by e-mail from Garland, TX


A. Anyone who thinks doctors 'have it made' should take a close look at that debt figure--- and that's before the costs of establishing a practice, etc. It's pretty intimidating, even when you can swing a lot of income.

I suggest that you come at this from another direction. Compromise: make equal payments on your loans and retirement plans, treating the loan repayments as part of your fixed income portfolio. Basically, you'll be getting a certain return on your loan repayments--- better than you can get in the bond market today. Your return on your retirement plans will be uncertain but it will be uncertain forever, so get used to it. Besides, you may be taking your chances with the stock market but each dollar you invest will have an out-of-pocket cost of only 65 cents since you will be investing pre-tax dollars.