MetLife also reports stronger demand for fixed immediate annuities. Retirees put $560 million into MetLife's fixed immediate annuity in 2009, representing a 109% gain over 2008.

"We are seeing an inkling of more demand and interest in single-premium immediate annuities," says Dan Weinberger, a MetLife vice president. "Financial planners are interested in understanding how it fits into the big picture."

Weinberger says that depending on a client's financial situation, advisors should use a range of investments that may include a fixed immediate annuity, a variable annuity with a guaranteed lifetime withdrawal benefit or a deferred immediate fixed annuity that begins payout at a specified time in a policyholder's old age.

Older individuals often select the fixed immediate annuity with a 10- to 20-year period certain option because of the high payouts compared with selecting the payout option that continues the income payment for the surviving spouse's lifetime.
Independent research shows that adding the fixed immediate annuity to a portfolio of stocks, bonds and mutual funds decreases the probability that the retiree will run out of money. Separate studies, including a 2005 research report by Conning Research, as well as a 2006 study by Moshe Milevsky, finance professor at York University, Toronto, indicate that cash-flow planning should include immediate annuities. Plus, with a fixed immediate annuity, the overall portfolio's risk-adjusted rate of return is higher than that of a portfolio without an immediate annuity, both reported.

John Diehl, financial planner with Hartford Life, Wayne, Pa., recommends anchoring a client's retirement portfolio with guaranteed sources of income. He suggests an immediate annuity or a deferred variable annuity with a lifetime guaranteed withdrawal benefit. Then policyholders can tap other investments to help maintain current lifestyles and grow wealth to keep pace with inflation.

"Most people invest in stocks and bonds or mutual funds when they are saving for retirement," he said. "But they need to invest to have income for as long as they live."

Diehl says, for example, that someone who rolls over a 401(k) into an IRA needs to segment those assets as well as their other investments.

There should be a guaranteed source of income to cover basic expenses such as food, clothing, housing and medical needs.
"If you have $5,000 a month in basic expenses and get $4,000 from a pension or rollover IRA and Social Security, you have a $1,000 a month gap," he says.

To cover that gap, he suggests, for example, putting about $148,000 in an immediate annuity that will pay $1,000 monthly for a 65-year-old male. Or the client could put $192,000 in the annuity, so the surviving spouse could receive the $1,000 in monthly income for as long as he or she lives. 

Lifestyle expenses, such as travel, entertainment and maintaining a comfortable living situation, can be funded in taxable accounts by tax-free municipal bonds and dividend-paying stocks or stock funds. In the tax-advantaged rollover IRAs, retirees might invest in bonds or bond funds and stock funds that generate a lot of short-term capital gains, which otherwise would be taxed as ordinary income.