Hybrid annuities solve the liquidity problem of other annuities, providing some growth as well as some guarantee of income, says Rob Wheat, investment advisor representative, insurance agent and owner of Wealth Harmonics in Dallas. A hybrid annuity allows investors to allocate a portion of assets to a fixed annuity and a portion to a variable annuity. "I look at hybrid annuities as the income leg in their retirement plan," Wheat says.


According to AnnuityGuys.org, hybrid annuities can provide 4% to 7% growth of an income base account for future income, some upside market potential, and of course, pension-style income that cannot be outlived. Heirs can receive the full account value of any funds that have not been withdrawn.

Eric Judy, investment advisor representative and insurance agent at Eric Judy Financial Advisory Services in Springfield, Ill., says he typically doesn't recommend hybrid annuities for clients under 40, because they still have enough time to benefit from investing money in the public markets, where, historically, growth has outpaced annuities. Hybrid annuities are also not best suited for retirees older than 75, because they don't get the full benefit of the "growth" part of the product. These older clients would typically receive a greater income benefit from an immediate annuity.


Bob Steinke, head of managed and insured solutions at Janney Montgomery Scott in Philadelphia, notes that annuities are already complicated, and that hybrid annuities "combine multiple strategies in an already-complex chassis." On top of that, hybrid annuities also have high surrender charges, making careful planning all the more important. Judy says that if someone needs to surrender their hybrid annuity, "that means they planned poorly and likely just bought an annuity based upon the product, and not as part of a well-constructed financial plan."

Michael Lecours, advisor at Ohanesian/Lecours in West Hartford, Conn., says he occasionally recommends products that offer a guaranteed lifetime withdrawal benefit rider, but he tries to use products with no surrender charges, no commissions and no early withdrawal penalties.

Katie Kuehner-Hebert is a freelance writer in Running Springs, Calif. She has contributed to American Banker, Risk & Insurance and Human Resource Executive.

This story is part of a 30-day series on Social Security and retirement income strategies.