Retiree ponders where to invest after his bonds are called

Q: I invested a large amount of money in Freddie Mac, a quasi-governmental agency. But my bonds have been "called" twice recently to adjust for changing interest rates. I must now reinvest the money. Besides my Social Security and a modest retirement check, I depend on dividends to help pay for my stay at a nursing facility. I have $33,000 to invest. I'll be talking to my investment adviser soon. Any thoughts?
M.E., via e-mail

A: "Have your investment adviser consider a fixed annuity that you renew from year to year, without locking in an interest rate," says David Bendix, who heads Bendix Financial Group, in Garden City, N.Y.

Mr. Bendix uses AIG, an insurance firm with high ratings for financial stability. "You might also consider using a diversified GNMA fund," which is paying about 5 percent interest, he says. GNMA is another quasi-federal agency that buys and sells mortgages. Sun America, Fidelity, and Vanguard offer GNMA funds.

Q: A representative of a mutual fund that we are in says that the company must take out taxes when they disperse funds, instead of sending the gross amount. We lose the opportunity to earn more on the money during the year. Can't they make tax-deferred payments?
B.S.B., via e-mail

A: We checked with several mutual fund groups. Typically, they are required by federal law to withhold taxes, unless the money is directly rolled over to another tax-deferred account such as an IRA. So it's true you lose the opportunity to earn some interest. But if you have overpaid taxes, you can at least get a refund after you file your federal tax forms next year.

Q: Explain a GIC, a guaranteed investment contract. Most of my coworkers have them in their retirement plans.
R.O., New York

A: GICs are popular additions to 401(k)/403(b) plans. Generally, they guarantee a fixed rate of return for a set time period. So they are sort of like bonds. But consumer experts recommend checking with rating services such as Standard & Poor's to make sure the insurance company offering GICs has good credit. Reason: GICs are often backed only by the assets of the insurance company that issues the GIC.

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