Saving to retire is easy as 1-2-3, or a combo

Your biggest concern should be the issuer's financial strength. Though state guaranty associations cover immediate annuities, typically to $100,000, an annuity from a failed issuer is a problem most people would rather avoid. You can check an insurance company's financial strength at www.ambest.com.

Method 3: Income-replacement funds

Fidelity Investments has recently started a set of funds with regular payout plans. Vanguard has plans for similar funds. Fidelity's Income Replacement Funds invest in a mix of Fidelity's stock, bond and money market funds. The Income Replacement Funds make regular monthly income payments based on a set period — 10, 20 or 30 years. The fund's payments will often be a mix of dividends, capital gains and a return of your principal.

If you invest $1 million in the fund targeted to last 30 years, for example, you'll get $4,175 a month, or $50,100 in the first year. The fund aims to increase payments each year to keep pace with inflation, but it may reduce payments if the fund performs poorly. At the end of the fund's fixed term, it liquidates any remaining assets and distributes them to shareholders.

The drawback is that income-replacement funds don't guarantee that payments won't fall. But if you need extra money, you can sell shares at no cost.

The main disadvantage to all three solutions: They probably won't generate as much income as you'd like, particularly in these days of low rates. A reasonable strategy would be to try all three, using at least part of your savings in stocks for long-term growth.

John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays. Click here for an index of Investing columns. His e-mail is jwaggoner@usatoday.com.

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