A LIFETIME stream of money.

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Author: Rehfeld, Barry

IMMEDIATE annuities won't keep you up at night if you do your homework before you buy. You get a safe investment with a robust interest rate and no direct fees attached, and you can readily purchase an option that may return all the money you expected--and perhaps more--to a beneficiary if you die before you collect it yourself

Still, these contracts aren't for everyone. The best candidates are people likely to live a long life. While there's no way to know whether you'll do so, a few moments on the Web, taking the life expectancy quiz at www.agingresearch.org, can help you decide if you're a good candidate.

If you're pleased with your results, stay on the Internet because it's a good place to search for annuities. A host of Web sites, including www.annuity.com, www.annuityadvantage.com and www.immediateannuities.com, will give you the basics quickly, starting with some ballpark figures. The sites first ask for your age and gender because they affect how much the annuity will cost. Women pay more than men for the same benefits because they are expected to live longer and collect more money. Both men and women get higher benefits the older they are when they buy an annuity because they are likely to collect for fewer years.

You must choose either the amount you want to invest or the amount you want to receive. Then one click of the mouse brings up a screen of options to choose from, with approximate costs and benefits.

The basic annuity comes first, followed by numerous options. The options cost more because they guarantee that at least some money will be paid out over a set period of years or even that the cash stream will outlive you, should you opt for payments to continue to your spouse if you die first.

A 65-year-old man, for example, who pays about $150,000 will receive $1,000 monthly for life, or a solid yield of 8% (counting the part of the payments that is a return of: the principal). If he adds his wife to the policy, he will have to pay more than $ 180,000 to get the same amount--which is a yield of nearly 7%. However, if he dies before she does, she will continue to collect until her death.

If one or more plans appeal to you, next home in on the annuity providers. Answer a few more questions and the site will give you exact quotes from insurers. Armed with that information, you can buy the annuity through the Web site, an insurance broker, a mutual fund company or a financial planner. "Shopping around can make a difference of $50 a month, and that can add up when we're talking about the rest of your life," says Leon Rousso, a financial planner in Ventura, Cal. "But you also have to check the insurer's financial health. Anything less than an A rating and you're looking for trouble."

YOU GIFT a good sense of the company you might be relying on for the rest of your life by registering at the Web sites of the rating agencies, such as A.M. Best (www.ambest.com). Standard & Poor's (www.standardandpoors.com) and Moody's (www.moodys.com). Each has its own ranking system of letters, numbers and symbols, but it comes down to picking the best deal from among the insurers with the top two or three ratings. Lower-ranked insurers may pay you more, but the risk of not collecting benefits is greater. It your insurer goes bankrupt, your benefit may be cut, suspended or lost entirely.

Interest rates at the time you buy an annuity also affect its cost. An annuity's cost can change daily as rates move up and down. These days, annuity prices per dollar of benefit are high because interest rates are low. You might find that discouraging, but Hersh Stern, who operates Webannunities.com, argues that you "shouldn't play the interest-rate game. If you wait around for interest rates to go high, you'll never buy because you'll always think that if you wait a little longer you'll get more money."

As a compromise, consider buying several annuities over a period of time instead of putting all of your money in one annuity. That way, you stand a chance of buying on the right side of the interest-rate cycle.

After you've done your research, it's time to decide the size of your annuity. Many annuity specialists consider one-fourth of your investment assets to be a reasonable amount for diversification. Your comfort level at paying out a big chunk of money all at once may influence your decision, but there are more tangible reasons to justify the amount. "You're likely to have a lower cash flow when you retire, and the annuity can fill or help fill the gap between your needs and the money from social security and pensions," says Brian Nikulski, a financial planner for American Express in Des Moines. "Figure out that number and you'll know how much to spend on annuities."

Before settling on an amount, take taxes into account. If you roll the money for the annuity from a pretax account, such as a 401(k) or an IRA, you'll have to pay taxes on the payments you receive.

But if the money for the annuity comes out of after-tax savings, you'll pay taxes on only a portion of the money, at least for many years. For example, a 65-year-old man is expected to live another 15 years. For the first 15 years, part of the payments he receives is a return of money he put into the annuity, so it isn't taxed. The rest is income, and it is taxed. Should he live past age 80, he would beat the insurance company at the actuarial game, having recovered all the money he paid for the annuity, and would then pocket the insurer's funds alone. That is pure income, and he must pay taxes on all of it.

One last question you need to ask yourself is whether to pay for the annuity out of your stock portfolio or by using other assets, such as bonds and cash. William Reichenstein, an investment professor at Baylor University, recommends leaving the stocks alone. "You're buying some peace of mind with the annuity, so you can afford to become more aggressive," says Reichenstein. "By using bonds or savings, your remaining assets are weighted more heavily toward stocks."

Having a higher percentage of your remaining assets in stocks also helps when inflation rears its head. Stocks generally do better than bonds when prices rise, so a portfolio heavier in stocks may help you make up the financial gap that the annuity, with its forever-fixed payment, will inevitably leave in later years. Although you can buy an inflation-indexed annuity, few insurers offer them, so your choices are limited. In any case, you'll have to stomach considerably lower payments early on.

Diversifying your asset mix to include a fixed immediate annuity will not eliminate all your concerns about your retirement finances. But it should give you more time to worry about less.

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By Barry Rehfeld