Variable annuities can provide an effective retirement income management solution. They can furnish a predictable source of guaranteed income for life, without increasing your administrative or fiduciary burden. A variable annuity is an insurance product. It is a contract between you and an insurance company. You purchase an annuity with either a lump sum or a series of payments over time. At an agreed-upon date, the insurance company will begin making periodic payments to you.

Variable annuities look similar to other investment tools but have their own distinctive features. Similar to IRAs or 401(k) plans, the annuity dollars may be divided into a range of subaccounts that are invested in money market instruments, stocks, bonds, or a combination of all three. Naturally, this means the performance of your variable annuity will fluctuate over time. Because these are designed to offer income later in life, time should be your friend. By setting up an annuity early in the retirement planning game — and you are welcome to have more than one — you will get the most bang for your buck. Variable annuities vary from direct mutual funds in the following ways.

Periodic Payments

This may be the number one reason to set up a variable annuity in the first place. It can give you regular income for the rest of your life. Even better, you can arrange for payments to extend to the end of the life of your spouse or another person you designate. The big benefit here is that you cannot outlive this asset.

Death Benefit

Should you die before the insurance company has begun to make periodic payments, your beneficiary will receive a specified amount, guaranteed. This amount would at least be equal to the contributions you had made to the annuity. If the account had not yet reached the agreed-upon value targeted at the time periodic payments would have begun, your beneficiary should still be able to receive some distribution.

Deferred Taxation

As with an IRA, you are shielded from taxes on both the investment and the earnings of your annuity until you begin to make withdrawals. It is also possible to transfer money in the annuity from one investment option to another without paying taxes. Once the withdrawals start, both the investment dollars and the earnings accrued will be subject to regular income tax. If you have dropped to a lower income bracket at the time your periodic payments are made, you will have done well taxwise.

Additional Benefits

In addition to tax advantages, other reasons to contemplate incorporating annuities into your overall financial plan for retirement may include the following:

• Guaranteed income

• Unlimited contributions

• Bonus rates possible for the first year

• With fixed annuities, no risk of loss

• No-penalty annual withdrawals

• No-penalty rollovers

• No probate in case of death

• No initial sales charge

• Investment earnings are sheltered

For more information, check out the Web site www.mostchoice.com.

Some 401(k) plans or IRAs may offer annuities as an investment choice. You will get no additional tax benefit if you choose one of these. Generally, it is recommended to invest in other tax-advantaged plans before an annuity because of their complicated tax rules. If you go with one in your IRA or 401(k), you might select it for its lifetime income payments or death benefits. Talk to a tax professional before making your final decision.