DEAR BRUCE: I recently retired at age 57. My company closed and moved to another city. My husband and I have paid off our house and are debt-free. I have $120,000 in my 401(k) at the moment. I will be receiving a pension when I'm 62 or 65 years old, and hope to be receiving Social Security someday. A friend in the business is trying to convince me to roll my 401(k) into an annuity. It sounds almost too good, and I'm dubious of the annual fees. What would you suggest, given my family's financial situation? I fully intend to work part time after my unemployment benefits run out in early January 2008. Also, we have one son who is fully independent in another city. My husband (age 60) wants to work at least another two years before he starts drawing on his pension. He also has a part-time income from home. — L.B., via e-mail

DEAR BRUCE: I recently retired at age 57. My company closed and moved to another city. My husband and I have paid off our house and are debt-free. I have $120,000 in my 401(k) at the moment. I will be receiving a pension when I'm 62 or 65 years old, and hope to be receiving Social Security someday. A friend in the business is trying to convince me to roll my 401(k) into an annuity. It sounds almost too good, and I'm dubious of the annual fees. What would you suggest, given my family's financial situation? I fully intend to work part time after my unemployment benefits run out in early January 2008. Also, we have one son who is fully independent in another city. My husband (age 60) wants to work at least another two years before he starts drawing on his pension. He also has a part-time income from home. — L.B., via e-mail

DEAR L.B.: It seems to me that you and your husband have worked hard and planned well. I have no problem with any of the things you have outlined other than your description of a "friend" trying to convince you to roll a 401(k) into an annuity. You have every right to be dubious. You already have the ability to roll the 401(k) into a self-directed IRA, which will provide an enormous amount of flexibility in moving from one investment to another without an immediate taxable event. I think your "friend" may be salivating over a large commission, because I can see no advantage in getting into an annuity. You already have the tax shelter. With an annuity, you'll be locked out of your own money for a good many years, and the idea of "you can't lose because of the insurance" aspect is a canard.

DEAR BRUCE: My husband and I don't agree on when it is a good time to pay off our home mortgage. We are currently in a home that is too big to fit our retirement needs. I say why hurry to pay off this 20-year mortgage. He thinks there's some advantage to quickly building home equity. We have 15 to 20 years before we retire, so should we move to the smaller house now and start paying it off early? — C.A., via e-mail

DEAR C.A.: Apparently, you and your husband are looking at your home only as an investment, and it surely is that, but it is also a lifestyle. You haven't mentioned your age, but I'm guessing late 40s or early 50s. Do you have children at home, where you might need a larger house? Then by all means stay there. If the children have left the nest and you don't have need for the extra space, consider moving now. At the risk of sounding like a broken record, you would be far better advised to invest the difference in the marketplace rather than paying off the mortgage early. It seldom makes sense to do that unless you have an extremely high rate of interest or you can't control your spending. Neither seems to apply here.

Of course, another variable is that you may choose not to live where you are living now 15 to 20 years down the road, but so what? The house can be sold, and you can apply that money elsewhere. Don't allow your decision to be entirely colored by what seems to be the most desirable financial choice. It is clear that people should consider the retirement years; but you shouldn't lose sight of the fact that many people will never make retirement age, and you should be entitled to enjoy your life.

DEAR BRUCE: My wife's sister died of cancer in April 2006. We just sold her house after a year on the market. Will we have to pay tax on the profit from the sale, or is that included in the whole estate? Is there any inheritance tax? — D.A., via e-mail

DEAR D.A.: A tax professional could provide the answer, but in general, because the house has been on the market since it was inherited, the established base at the time of the estate's settlement would be the tax-free number. Anything above that, you would pay tax on the profit. Hopefully, the value of the house was established at a higher price so that the base would be high. But that's already been done; let's hope someone had the good sense to handle the transaction that way.

Send your questions to: Smart Money, P.O. Box 2095, Elfers, FL 34680. E-mail to: bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.