Financial advisors also need to consider Medicaid rules when dealing with older clients, who may some day go into a nursing home. A policyholder who has exhausted his or her funds due to a nursing home stay may have no choice but to apply for Medicaid-the public assistance program funded by states and the federal government.

A good-quality nursing home can cost $80,000 a year-not including drug and medical expenses. So it's possible that even an affluent individual could exhaust his or her resources.

To qualify for Medicaid, persons needing long-term care typically must "spend down" assets to $2,000. The "community spouse," who remains at home, generally is permitted to keep some $100,000 in resources.

State Medicaid laws are complex and always change. Bennett Kleinberg, senior actuary at MetLife, recommends that advisors consult with an elder-law attorney before placing clients' money into the annuity. Medicaid rules may require that the immediate annuity name the state as the "remainder beneficiary," so the state gets reimbursed for medical assistance, long-term care and community services. The primary beneficiary is typically the policyholder's spouse. Otherwise, an annuity would be a "countable asset," hindering a policyholder's ability to reach the asset thresholds needed to qualify for Medicaid.

The remainder beneficiary is the beneficiary who will become a current beneficiary after a specific event, such as the death of another beneficiary.

Some actuaries say that younger retirees may be better off in a variable immediate annuity, which invests in different types of mutual funds.

Jeffrey Dellinger, actuary and author of "Variable Income Annuities," says fixed immediate annuity income payments don't keep pace with inflation.

A better option, he says, is to invest in a variable immediate annuity. Over a lifetime, with the proper asset-allocation mix of stocks, bonds and other asset classes,  income payments should more than keep pace with inflation. In addition, most variable immediate annuities have a guaranteed payout floor to protect against poor financial performance.

There is more potential for return with a variable immediate annuity," he says. "The payouts are better in the long run."

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