Hamlet may have had a couple of issues about dying, but had he been an aging Baby Boomer, he would found himself with even more issues about living. How ironic it is that today’s retirees find themselves in the precarious position of having to worry about living too long. Their longevity may actually cause them to outlive their nest eggs.

One possible solution to this quandary is using a portion of your retirement savings to purchase a fixed annuity contract that guarantees payouts for the rest of your life. Annuitizing a portion of your retirement savings can be an advantage to someone who isn’t sure they have saved enough to last for the next 20 to 30 years. If you allocate a portion of your retirement savings into an annuity, you can optimize the remaining portion by investing more aggressively, depending on your goals and level of risk tolerance. This two-pronged approach will maintain balance between the two options, so you can still seek a higher return while ensuring you will never be completely without.

If you are thinking about annuitizing, you do have some options. The first is to purchase your contract from a highly rated insurance company. Since an annuity is only as good as its underwriter, you will want to be sure that the company is financially fit and will stay the course.

Some investors have voiced concerns about locking in interest rates with an annuity, especially if purchased when interest on U.S. government securities, which are the yardstick for annuity interest rates, are at low levels. Because of this concern, the industry has responded with new annuity contracts that are responsive to increases in the cost-of-living. Some of these new vehicles offer a lump sum payment to account for the increase, while others adjust payments upward by 3% annually. There is yet another type of annuity that is designed to adjust payments in accordance with the fluctuations in the Consumer Price Index. As the face of retirement changes, the annuity market is working to create products that better serve the needs of the consumers who purchase them.

While fixed annuities can ensure you’ll never run out of money, they are not without drawbacks. The operative word here is “fixed,” which means once you enter into an annuity contract, there’s usually no way out. Also, you no longer control the portion of your money invested in the contract. If annuity payments are structured on a single life only option, payments cease when you die. However, if you elect joint-and-survivor benefits, payments will continue to your spouse after your death.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

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