When you're planning a late retirement
Some people purchase an annuity in early retirement that will produce income in 20 to 30 years for their later retirement, AARP's John says.
Called a "longevity annuity," it pays a smaller amount at 65, "and a much larger amount" at 80 or whatever age you preselect, he says.
The purpose: If you decide in advance that you don't want to actively manage your accounts after a certain age but don't want to worry about running out of money, you're guaranteed a fixed monthly check, John says.
There is a downside. The investment money is tied up in the interim. And if the buyer dies before collecting, the money "just goes away" unless the buyer selects another option at purchase, he says.
An investor also has the option to allow the money to pass to a beneficiary should he or she die. But such options can translate to lower monthly payouts.
There aren't as many providers for longevity annuities as with other types. And buyers need to do due diligence to ensure that the insurer is financially strong, so it will be around when they start to collect.
"Research in advance is really essential," John says.