Q. My wife and I recently went to a "free dinner" to get educated on the best way to manage our money for retirement. I'm 66 and my wife is 65. Together we get a little over $50,000 a year in Social Security and pensions from former employers. Our home is paid for and, living in Texas, we don't have a state income tax to worry about. Ihave a 401(k) with about $150,000 in DuPont stock and around $350,000 in a "stable cash fund." The stable fund is paying about 4 percent. I also have a 403(b) with about $225,000 spread over three Vanguard funds and about $110,000 in a taxable account with three Franklin Templeton funds.

The advisor has recommended moving a significant amount of this money into annuities. She was recommending $100,000 into a 10-year annuity with a 10 percent signing bonus and guaranteed increase in value of 8 percent a year. You are allowed to withdraw up to 10 percent per year after the first year without penalty.

Her commission is supposed to be paid by the company and not from our proceeds. Maybe I am just naturally skeptical, but I've always believed that if it sounds too good to be true, you should run away as fast as you can. My wife is more accepting of all these claims, especially since she has less tolerance for market ups and downs. Do you have any opinions on these annuities? The advisor had several other companies that offered either lower interest rates or smaller bonuses. She brought them up when she had us investing up to $500,000 in annuities and I said I wasn't comfortable putting all my eggs in one basket. My wife says we could just do $50,000. —S.G., by email from Pflugerville, TX

A. There is no free lunch. No free dinner either. While it is true that the salesperson’s commission is paid by the insurance company and 100 percent of your money is invested, I assure you that the insurance company does not look to the tooth fairy for recovery of its marketing and sales expenses. The salesperson’s commission and related marketing costs are a cost of doing business. That cost can come out of two places: from your original investment or from the return on your investment. Either way, it’s out of your pocket.

How it comes out will depend on how long you own the product. The insurance company guarantees that it will recover its marketing costs by writing a surrender charge into the contract. These surrender charges vary, but typically range from 6 to 8 percent. The percentage typically declines by 1 percentage point a year.

So if you are charged a typical 1.25 percent a year for “mortality and risk,” and the company has a 7 percent surrender charge, the company will recover 1.25 percent plus 7 percent if you surrender after one year (8.25 percent total). After two years it will have collected 2.50 percent in “mortality and risk’ fees, plus 6 percent in surrender charges, a total of 8.5 percent. After three years it will be 3.75 percent plus 5 percent (8.75 percent total), etc. If you don’t redeem early, they eventually recover the marketing costs through the annual mortality and risk charge.

I am not alone in believing that most variable annuities have expenses that far exceed the benefits. This includes those that offer a “living benefit” which guarantees an annual income regardless of what happens to the value of your investment.

Rather than consider what you are guaranteed, you should consider what the insurance company is guaranteed— it will collect fees equal to about 3 percent of your principal each year for as long as you hold the contract.

You get the right to withdraw at 5 percent, regardless of account value. What this amounts to is de-facto life annuitization because the odds are that your account will not appreciate to increase your income.

You could have more income, today or after some time period, if you simply chose to buy a joint and survivor life annuity. That choice would also increase your income over the amount you would receive from the product you have been offered.

Here is a link to an earlier column relating more of the details: http://assetbuilder.com/PVHTZB