Choosing an annuity income option

Another scenario to plan for is the decrease in household Social Security income when one recipient dies, she says, because that death leads to an often-unexpected income reduction for the survivor. "Another factor that a lot of people don't think about is that upon the first death, one Social Security check is gone," she says. "Even though the survivor will most likely get the higher of the two checks, still, one check is gone."

Staying flexible

Clients also need to balance the desire for income with the need for liquidity and flexibility, says Plewes: "What are the liquidity options from this insurance company? What other types of death benefits would be available in case you did choose something like an immediate life-only annuity without a period certain? Is there flexibility in the payment amounts?"

As an example of flexible versus fixed payments for the payout's duration, he points out that some insurance companies give annuitants more choices. "A lot of insurance companies will allow you to stack the payments a little bit higher in the early years while you might be waiting for Social Security," he says. "Then you'd have a smaller payment later in life once your pensions and Social Security kicked in or you might want to do it the opposite way. You might want to ask the company if they would give you a lower payment now for a few years while you still have a business or rental income or things like that are still active and, then, increase it later in life."

It's also worth inquiring about inflation options, he adds. Although inflation-adjusted payouts start smaller, the benefit will increase over time, offering a degree of purchasing power protection.