Question: I hope to retire in early 1983 at age 67. I have a Keogh plan with an insurance company which will total around $40,000 at that time. The company says they will pay me $325 a month for life (10 years certain). A local S&L officer suggests instead a rollover to an IRA; at present rates that would pay me more than $400 a month in interest, but subject to changes in interest rates at the end of each three-year period. This seems like the better course to take. Your opinion would be appreciated, along with any snags I may be unaware of.

Answer: This letter points up comments I have made from time to time about insurance annuities as a vehicle for IRA or Keogh programs.

I have suggested that an annuity may be a good place to build a retirement fund, but it isn't necessarily the best place to leave the money when you start your retirement withdrawals.

The main advantage to a fixed-annuity program is that the insurance company promises to pay you a specified number of dollars every month for as long as you stick around, so you can never outlive your principal.

(A variable annuity guarantees lifetime payments, too, but the amount paid each month will vary with the value of the underlying securities.)

The "10 years certain" provision means that the company will continue to make the monthly payments to your named beneficiary if you should die early, until a total of 120 payments have been made.

The amount of the payments is not sensitive to changes in interest rates, inflation or the state of the economy. And most insurance companies are financially stable. (You can look up your particular company in A.M.B. Best's rating guide, available in many libraries.)

But at some point--on your death, the death of any co-annuitant or the expiration of the "certain" years--payments stop and any balance in your account stays with the insurance company.

As you have found out, you can get a larger return elsewhere--like the S&L IRA certificate that you mentioned. The disadvantage here is that the size of the monthly payment is assured for the three-year term only.

At the end of that time you will have to roll over the CD, and the yield will depend on interest rates at that time. You may still get more than the insurance company's $325--but you may get less, if interest rates drop significantly.

There are no tax differences between the Keogh annuity and the IRA rollover. The tax breaks normally associated with single-payment annuities do not apply when the annuity is used as an IRA or Keogh vehicle.

But starting in the year in which you reach age 70 1/2, you must start withdrawing principal as well as earnings from the IRA, at a rate which is determined by your life expectancy. The annuity, on the other hand, is by definition, a lifetime plan to begin with.

Of course some or all of the withdrawn principal can be reinvested in another S&L CD or elsewhere, thus not only insuring continuing payments through your lifetime but also conserving a part of the principal for your heirs--something that isn't possible with an insurance annuity.

The likelihood of continuing inflation, even if it's at a lower rate than we've experienced the past few years, would lead me to avoid the annuity with its dollar payment amount locked in for life.

But in moving to a certificate you should be aware of the risk of interest-rate fluctuation in future years and the possibility of outliving the principal if you don't practice some self discipline.