Buying Your Own Pension

For new purchasers. Annual expenses might exceed 3.5 percent per year (more, if you include a spouse), reports Kevin Loffredi, a vice president of Morningstar. Smart buyers aim for high long-term gains by loading up their investment accounts with stocks. If you guessed wrong, you can always fall back on your minimum income guarantee. Since the 2008 financial crisis, however, insurers have limited the percentage you can invest in stocks. You have to hold more bonds, whose returns aren't worth the high fees you pay.

New buyers should look for products that still let you put up to 80 percent in stocks, says Moshe Milevsky, author of The 7 Most Important Equations for Your Retirement. Also, look for low fees — 3 percent or less. You'll find especially low fees at the Vanguard Group or Fidelity Investments.

For people holding older living-benefit annuities whose investment account has plunged. "Don't wait for the value to recover," Milevsky says. "Start your guaranteed-income payout right away." In most cases, the payment stream is worth more today than it will be if you wait a few years.

For people who don't understand exactly how the product works. Don't buy on someone else's say-so. You might get trapped in a low-performing annuity with high surrender costs. In February, a California insurance agent drew a 90-day jail sentence for selling an annuity to an 83-year-old woman with dementia. (Her boyfriend advised her on the purchase. He and his daughter were the beneficiaries.)

For a low-cost alternative to living-benefit annuities. Consider putting part of your long-term money into a "deferred-income" annuity with guaranteed payments starting at some point in the future. For growth and inflation protection, put the rest of your money into your own choice of low-cost U.S. and international stock mutual funds.

If you prefer a one-stop package deal, however, living-benefit annuities can be a reasonable, although an expensive, choice.

Jane Bryant Quinn, a personal finance expert, wrote Making the Most of Your Money NOW.

Also of interest: Try our Fixed Annuity Calculator.