Q. For the last year I have read everything I can get my hands on regarding correct investing at age 65. I have not found very much at all— most of the material in print is aimed at the young individual or the middle aged one. But I will probably retire this year and have accumulated annuities worth about $300,000.

With those annuities paying 6 percent or less, should I continue to keep my money in them or roll it over to some mutual funds? ( If so, what type and percent?)

—P.C., Villa Grove, IL

A. The bulk of investment research is oriented toward portfolios in accumulation. When you retire everything changes: you have a portfolio in distribution. The risks and rules for investing change, too. Unfortunately, no one has written the rule book.

Here is what we know:

If you invest in all fixed income investments and spend the income, you will lose significant purchasing power during the 24 year period a newly retired couple can expect;

If you try to compensate for inflation by reinvesting the inflation rate every year, most people wont have enough income to meet their needs;

That you can reduce risk by investing in a variety of assets such as mixing stocks, bonds, and money market investments.

That the greater the gap between the income you require and the income produced by your investments, the greater your risk in a bear market.

That both your psychological tolerance for risk and your ability to recover from loss diminishes rapidly as you age in retirement.

Mix all those factors and you will come up with a portfolio that is probably 25 to 60 percent stocks with the balance in fixed income investments.

Q. My wife and I are in our late sixties and retired. We are contemplating selling our $125,000 home and buying a $200,000 town home. We have $550,000 in IRAs invested in equity and bond funds. We also have $225,000 in taxable stocks, bonds, and cash. Should we mortgage the additional $75,000 needed to purchase the town home or should we draw that amount from our investments?

— R.E., St. Louis Park, MN

A. From an investment point of view you are probably better off drawing down your taxable assets and avoiding a mortgage. The reasons are simple: in the current market you would pay at least 7.5 percent interest. With a large standard deduction for a joint income tax return, there would be almost no tax savings on the interest you pay. You would be hard pressed to get a 7.5 percent after-tax return elsewhere.

So dont. Invest in your mortgage.

In addition, the "constant" for such a mortgage— the monthly payment expressed as a percent of the original amount borrowed— is about 8.4 percent, squeezing your cash flow.

Q. I know mutual funds are an excellent way to save for retirement through IRAs. Ive learned that load funds have numerous fees, so it looks like no load funds should be purchased with preference given to funds without 12b-1 fees, redemption fees, etc.

Do transaction costs apply every time a stock is sold within the fund and replaced by another? I expect that transaction fees apply when monthly payments are added to the fund. Am I correct in this?

F.R., Fargo, ND

A. Lets straighten out some terms first. Mutual funds can have three levels of expense for their shareholders: marketing cost; management expenses; and portfolio transaction costs.

If you do your homework and acquire some basic knowledge, you can do very well with no-load mutual funds and you will avoid all the marketing expenses. A good example here is the T. Rowe Price funds. They have no loads, low-average annual expenses, and above average performance. That makes them a "good buy."

It is possible, however, to buy a no-load fund that is very expensive. Artisan International, for instance, is a no-load, no 12b-1 charge fund that has an expense ratio of 2.5 percent a year. Compare that to Europacific Growth fund, from American Funds, with an expense ratio of 0.95 percent but a front end load of 5.75 percent. In less than 4 years, the load fund would be less expensive than the no-load fund.

The third level of costs is the transaction cost for buying and selling securities held by the fund. They occur whenever there is a transaction and are independent of your actions. These costs are very small compared to marketing and fund management expenses.

Transaction fees do not apply when you make a monthly purchase. When you make a purchase the only cost is the cost of the load, if any.

Questions about personal finance and investments may be sent to: Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas 75265; or faxed to (214)-977-8776; e-mail to scott@scottburns.com Check the website: "www.scottburns.com." Questions of general interest will be answered in future columns.