With average lifespans increasing, there’s growing worry that many Americans will outlive their money. That’s where guaranteed income comes into play–sources of income that keep coming so long as you live. And there are three ways to get guaranteed income in retirement: Social Security, a defined benefit pension, or an annuity.

Social Security won’t cover everything, and most of us don’t have defined benefit pensions. So,   annuities can be a critical tool for plugging the gap.

When you buy an annuity, you hand over a chunk of retirement savings to an insurance company. In return, the insurer makes regular, guaranteed payments to you over a set period of time. In one sense, it’s a way of creating your own private pension program–or, a sort of reverse life insurance policy. Instead of insuring against death, you’re insuring against the risk of living a long time.

Unfortunately, navigating the annuity market requires understanding a complex series of product choices. The good new is that annuities are sold by insurance companies, and the products are regulated tightly by state insurance commissions. Also, many financial planners are able to help you navigate the complex options.

Insurance companies offer two basic annuity types: immediate and deferred.

–Immediate: payments begin immediately, and continue as long as you live. You can choose between a fixed immediate annuity, where the insurance company invests your money and pays you a fixed  monthly sum. Or, you can select a variable immediate annuity; here, you will receive payments as long as you live, but the amounts will vary depending on a set of investment choices that you make.

–Deferred: With a deferred annuity, the money you pay to the insurance company is invested and accumlates over a period of years, with payouts starting at a later date.

How Big an Annuity to Buy — and When

Here are several rules of thumb offered by financial planning experts:

–Don’t buy an annuity much before age 70–pricing actually improves as you age, since the insurance company’s total payout exposure decreases.

–Don’t annuitize more than 1/3 to 1/2 of your retirement savings. You don’t want to completely miss market upside opportunities, and you need to maintain liquidity in case of emergency spending needs.

–Gauge the annuity amount by adding up all your other sources of guaranteed retirement income (Social Security, a pension, if any) and then compare that with your projected expenses in retirement (housing, food, clothing, insurance and taxes). If there’s a gap between the two, consider annuitizing the difference.

Shopping for an Annuity

Your key considerations are price and safety of the insurance company.

Price: You can get a sense of price by shopping around with major insurance companies, perhaps with the assistance of your financial adviser. You can also get a sense of what you should expect to pay at ImmediateAnnuity.com, a website that allows you to plug in a dollar amount you’d like to invest–or the monthly income you’d like to receive–and get quotes on various annuity types.

Safety: This is a financial product you need to last a long time– perhaps 20 or 30 years. So, only buy annuity from insurance companies with the highest financial ratings especially in the current volatile insurance markets. You can check company ratings at the websites of raters such as A.M. Best, Standard & Poor’s or Weiss Ratings.

Learn More

–The Seven Best Annuities to Guarantee Income for Life: MoneyWatch.com analyzed immediate annuities offered by more than 100 insurance companies, and produced a list of the seven best immediate annuities on the market now.

–WISER Women: The Womens’ Institute for a Secure Retirement is a non-profit group with a mission to help women with retirement security issues–but their advice is solid for men, too! WISER offers an excellent, free downloadable guide to annuities.

–Kiplinger video. Mary Beth Franklin, of Kiplinger’s is one of nation’s top experts on annuities. The magazine produced an excellent, in-depth video (running about 30 minutes) featuring Mary Beth and other Kiplinger experts offering their advice on annuities. This is well worth your time.

Christine Benz, personal finance director for Morningstar, talks with Harold Evensky, president of Evensky & Katz Wealth Management, about immediate annuities.