It's not news that the employer-funded pension, once a major component of a worker's retirement plan, is fast becoming a thing of the past. But for those looking to recreate a pension's security and life-spanning regularity, there is hope with a variation of a classic insurance product — the so-called "fixed" annuity.

Also known as single-premium immediate annuities, this retirement vehicle will not help the critically under-saved or be of much use to the affluent, says Rande Spiegelman, vice president of financial planning with the Schwab Center for Investor Research. But he says “for the vast middle” they may offer relief from the dual fears of out-living one’s savings and making bad investment decisions.

"With a single premium immediate annuity you are done," says Bob Rockwell, a certified financial planner with Clackamas County Bank in Sandy, Ore. "You’ll get guaranteed payments for life or whatever period you contract for. There are no moving parts."

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Unlike deferred annuities, which are savings products, an immediate fixed annuity is a pure payment security — there is no variance in price, and no opportunity for appreciation. While other types of annuities have drawn the ire of consumer advocates and the Securities and Exchange Commission due to their reputation for high fees, undue complexity and occurrences of sales abuse, immediate fixed annuities have a lower profile, given their lower commissions and conservative make-up. But their "snooze factor" is their primary appeal. When used correctly they allow an investor to sleep well at night while not overly enriching the agent who sold them.

The way they work is simple. The purchaser hands over a lump sum of cash to the insurance company. In exchange the insurer returns that cash through a series of payments, typically monthly, which remain fixed and which it guarantees will last as long as the purchaser does. For instance, a $300,000 lump sum might generate $2,000 in monthly payouts. Since it is an insurance product, there are variations on the theme, each with its own added cost.

However, in the crudest sense, immediate fixed annuities are bets on the life expectancy of the purchaser. If the person dies before all their money is returned to them, the insurance company keeps what remains in the contract whether that happens ten years, thirty years or 2 weeks after an annuity contract is written. If annuitants outlive the insurer’s life expectancy tables, they wind up earning a nice return.

CONTINUED : Live long and prosper

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