Q. I am a 44-year old single female, technical professional with an annual income of $55,000. I have no debt or mortgage. I am able to save $500 a month, most months. I have also saved for retirement for the last 20 years and my IRA (stocks, bonds, funds) has been decimated by the bear market.

All of my grandparents lived to be 100 years old, so I expect to live past 100 and am in excellent health. I have long-term disability insurance and am frugal by nature.

My question: what is a good retirement investment strategy? Do you think an annuity is a good idea? Should I convert all or part of my savings to an annuity? I plan to retire at 70, but perhaps work part time after that. Social Security will provide about $1,400 per month and an additional income of $1,400 a month for life would provide peace of mind.

---H.S., by e-mail


A. The only kind of annuity you could consider is a deferred annuity, one that would allow you to save and invest on a tax deferred basis. There is no need to start thinking about an annuity investment until you have exhausted conventional tax deferred accounts such as your IRA. Indeed, in the current market, taxable mutual fund investments are virtually tax-free.


Simply this. Most equity funds provide very little dividend income. They also have enough capital losses that they won't be distributing taxable capital gains for several years. Vanguard Total Stock Market Fund, for instance, recently had a trailing 30-day yield of only 1.36 percent, a potential capital gain of MINUS 19 percent of assets, and a portfolio turnover rate of 7 percent.   Bottom line: it's about as tax-efficient as you can get without the fees and expenses that come along with most annuity contracts.

Many years from now--- after you are retired--- is when you should consider an annuity. It should be an immediate annuity, the kind where you trade your principal for the guarantee of a lifetime income. The longer you wait to get the annuity, the greater your guaranteed income because your life expectancy will be shorter. At www.immediateannuity.com, for instance, I found that a woman, age 70 could convert $50,000 into a lifetime income of $369 a month. That's $4,428 a year--- a lot more than you could get on any bond investment. It's a nice deal for someone likely to live a long time.


Q. I'm a 23-year-old graduate student. I'm currently working two jobs to make a living and pay for school. My question is what is the best way to save up for my retirement, considering my circumstances?

Currently I have invested in two mutual funds. One is more conservative for retirement and the other is a bit more aggressive. I'm investing $100 a month, which is better than nothing. Besides the mutual funds, I also have a separate savings account for extra money. I heard that if I wanted to look further into investing my money I should take a look at Roth IRA's.   Should I? Any other suggestions?

---P.T., Houston, TX


A. Your "better than nothing" monthly investment of $100 puts you way ahead of most Americans, including many who are much older. It will also serve you well for the future. One well-known investment illustration shows that a sum saved annually from 20 to 29 will grow to more than the same sum saved every year from 30 to 65.

How does this happen? It's the magic of compound interest and time.

In addition, a Roth IRA investment is particularly suited to young workers because you are probably in a low tax bracket. As a single person, you can have a gross income of nearly $36,000 and still be in the 15 percent tax bracket. You pay taxes, at 15 percent, before investing today so you can invest tax-free for the long-term future.  

I think it's a very good bet that you'll be facing a tax rate much higher than 15 percent if you invested in a conventional IRA and started making taxable withdrawals 45 years from now.