NEW YORK (CNN/Money) - I'm in my 70's and have most of my money in certificates of deposit. I receive about $1,500 a month from a pension, which is enough for me to get by on. Does it make sense for me to invest in annuities at this time?

-- Keith, Stamford, Conn.

To help you answer this question, I think we need a little crash course in annuities, a type of investment that's issued by insurance companies and sold by insurance agents, brokers, financial planners and even some companies on the Web.

Basically, there are three types of annuities.

Immediate Annuities You hand over a sum of money to an insurance company, say $100,000, in return for the insurer's promise to pay you an income over a specified period of time, say, for the rest of your life. The payment you receive is based on your life expectancy, as estimated by the insurance company.

You have two options. With a fixed immediate annuity, the payment is, well, fixed -- say, $800 or so a month for life for a 65-year-old man investing $100,000.

With a variable immediate annuity, the amount could vary based on the investments in the annuity. If the annuity is invested primarily in stocks, the income stream could be volatile in the short term, but the idea is that it should grow over time.

If you die a few months after buying an immediate life annuity, the insurance company wins big time because it gets to keep your money and no longer have to make the payments.

There are plenty of other income-annuity variations: You can select a shorter time frame, for example, or name beneficiaries who would continue receiving payments after your death. The trade-off would be receiving small income payments while you're alive.

You've said that your pension gives you enough money to get by, which suggests to me that you're not a candidate for an immediate annuity. But there is one other thign to consider. Unless you get cost-of-living increases in your pension, inflation will erode the purchasing power of your $1,500-a-month payment. That won't be a problem if you've got enough stashed away in those CDs to take care of any shortfall. But if you think your pension plus your CD money might not cover your expenses adequately 10, 20 or (thinking positively) 30 years from now, then you could consider putting some of your CD money into a variable annuity invested at least partly in stock accounts so the payment it generates has a good chance of growing over time.

Deferred Variable Annuities With this breed, you get to invest in a variety of "subaccounts," portfolios that function like mutual funds.

The advantage is that money in subaccounts grows tax-free until you take out the money. And you can move money between subaccounts with no tax consequences.

On the negative side, subaccounts in a deferred variable annuity tend to have higher operating expenses than mutual funds, which puts a drag on their returns. There are also "surrender fees," another set of fees that kicks in if you move your money out of a deferred variable annuity within a certain number of years, usually five to 10 years.

And while deferring taxes on gains is certainly a plus, you get hit upon withdrawal, paying income tax rates that run up to 39.1 percent this year. Capital gains in a regular mutual fund would be just 20 percent.

The bottom line is that it can take many, many years -- 15, 20, or even more -- for the advantages of tax-deferred growth to outweigh the drag of high fees and the disadvantage of ordinary income tax rates at withdrawal.

I hope you live a long, long life, but considering that you probably shouldn't plan to invest in a deferred variable annuity unless you plan to keep your money there at least 15 years, I don't see you as much of a candidate for this annuity option either.

Fixed Annuities Which brings us to the third -- and, mercifully -- last option. A fixed annuity works much like a certificate of deposit. You invest your money and are paid a given rate of interest for a specified term. For example, an insurer might promise to pay 3 percent for a one year, 5 percent for five years or 6 percent for 10 years.

Unlike interest paid on a CD, however, a fixed annuity's interest payments are not taxed as long as you keep the money within the annuity. So, as with a deferred variable annuity, you get the advantage of tax deferral.

But fixed annuities also have their downsides. There are surrender fees for early withdrawal. And you have to watch out for sales gimmicks: Some offer bonus rates that you get only if you remain in the annuity for a long time, for example.

And you've also got to be careful about how long you actually get the quoted rate. A 10-year annuity may only guarantee its quoted rate for one year. If it changes after that, you could be stuck (unless you want to pay the surrender fees).

So is the tax-deferral advantage worth all that trouble? By postponing tax on interest, you money works for you for a little longer.

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But unless you're investing big bucks, deferring taxes for just a year or two doesn't amount to much. And if you have to pay a surrender charge to get at your money, any advantage to tax deferral can easily be wiped out. So, unless you plan to keep your money in a fixed annuity for a long time, I don't see much of an advantage to moving your money from CDs.

My assessment is that you've managed to get this far in life without the help of an annuity. And unless you think the combination of your pension and your CD stash might not cover your expenses for the rest of your life, I don't see any compelling reason to change now.

That said, however, you might want to do a bit more research on this subject on your own. If so, you can start at such sites as Annuity.com, Insure.com and Variable Annuities Online.