Almost half of those near retirement are predicted to run out of money and won't be able to cover their basic expenses and uninsured health-care costs, July 2010 data from the Washington- based Employee Benefit Research Institute show. A husband and wife who are both 65 years old have about a 47 percent chance that at least one of them will live until 90, the GAO report said.

An immediate annuity can protect retirees from the risk of outliving their savings, according to the study. For example, a contract purchased for $95,500 by a 66-year-old couple in Florida may provide $4,262 a year until the death of the surviving spouse and include increases for inflation, the report said. Six percent of workers with a 401(k)-type plan opted for an annuity at retirement, said the study.

Resistance To Annuities

Americans have resisted buying annuities for reasons including concern about fees and the desire for control of assets, said David Laibson, an economics professor at Harvard University. Employers have held off on adding them to 401(k) savings plans because they're worried about litigation and lack clarity on how to proceed, Laibson said.

"The problem right now is interest rates are so low you're not getting a great return for that chunk of cash you're handing the insurance company," said Liz Weston, author of "The 10 Commandents of Money." That's why retirees may want to purchase a contract with some of their money now and buy another in the future when rates may be higher, said Weston, who's based in Los Angeles.

The Labor and Treasury departments are considering ways to encourage lifetime-income options in 401(k)-type plans, including showing the potential income streams from account balances in participants' statements.

"We anticipate issuing our first set of relevant guidance or rules in this area later this year," Assistant Secretary of Labor Phyllis Borzi said in an e-mail.

Head of the Pack

Asset managers and insurers understand that annuitization may need to be part of the retirement savings system as people live longer and have fewer defined benefit pension plans, said Harvard's Laibson. "Everyone's racing to be at the head of that pack when the ice breaks," he said.

State Street Global Advisors, a unit of State Street Corp., is planning to announce a 401(k) investment this fall that will include a built-in annuity, said Kristi Mitchem, head of the company's global defined contribution business, which had $166 billion in plan assets at the end of last year.