Should I move half of my savings into an annuity?

I'm 64 and recently met with a financial adviser who wants me to invest $400,000 of my $800,000 portfolio in an annuity. I read some nasty reviews of this annuity, but the adviser says it's the best annuity out there. What do you suggest I do?—Anonymous

Whenever an adviser suggests moving a big chunk of money from one investment to another it should automatically make you think hard about whether you're making a smart move.

A recommendation to put such a large sum into an annuity — a type of investment many people understandably find perplexing to say the least — should prompt you to think even harder. Throw in the fact that this annuity has "some nasty reviews," and hard thinking or no, you can't help but have serious doubts of whether going with this adviser's proposal is a good idea.

But to answer your question, I think we need to step back from this specific recommendation for a moment and take a broader look at your situation. Just because an adviser has recommended an annuity doesn't necessarily mean you need one. So the first issue you need to address is whether you actually need an annuity. If you arrive at the conclusion that you do, you then can move on to the question of whether the type of annuity that's being recommended is right for you and how much you ought to invest.

Related: One way to get retirement income for the rest of your life

So let's start with whether you're a good candidate for an annuity. Given that you're either retired or nearing retirement, I assume the annuity recommendation came up because you're looking to have a source of post-career income you can't outlive regardless of how the financial markets perform. For that goal an annuity can often make sense, as an annuity is the only investment that can provide income that's guaranteed for life.

But remember, you'll already have at least one source of guaranteed income in retirement — Social Security. (If you haven't begun drawing Social Security already, this Retirement Estimator tool can estimate the size of the benefit you'll receive.)

You didn't mention a pension, but if you also have a traditional check-a-month pension, that would be a second source of assured retirement income. So what you actually want to determine is whether you need more guaranteed income than Social Security and any pensions will provide.

One way to tell how much, if any, additional guaranteed income you require is to go to an online budgeting tool, like BlackRock's Retirement Expense Worksheet and tote up the expenses you'll face in retirement.

You won't be able to predict your spending to the penny. There are too many uncertainties for such precision. But to the extent you can do some "lifestyle planning" — i.e., thinking seriously about how and where you'll live after retiring — you'll be able to come up with a budget that should reasonably reflect your retirement spending.

If after going through this exercise you find that the income you'll get from Social Security and any other sources of assured income is enough to cover all or most of your essential living expenses, then you may not need any additional guaranteed income from an annuity. You may be able to rely on draws from your retirement portfolio — which, ideally, will be invested in a low-cost mix of stock and bond funds plus a cash reserve — to pay for any essential expenses not covered by Social Security and other assured income sources, plus discretionary expenditures and unexpected expenses that are bound to pop up from time to time. (This retirement income calculator can help estimate how much you can draw from your retirement portfolio each year without incurring too big a risk of spending down your assets too soon.)

If, however, Social Security and any other sources of assured income don't generate enough spending cash to cover all or most of your essential living expenses, then you might want to think about investing a portion of your assets in an annuity. For that matter, even if you don't need an annuity's guaranteed income stream from a strictly financial standpoint, you could consider putting some money into an annuity for the greater sense of security and well-being in retirement that research shows guaranteed income can engender.

If, whether for financial or emotional reasons, you decide an annuity does deserve a place in your retirement income plan, you can turn your attention to what type of annuity makes the most sense.

Related: Will your expenses stay the same in retirement?

These days many advisers tout annuities that come with lots of bells and whistles, including variable annuities, which allow you to invest in mutual-fund like "subaccounts," and fixed indexed annuities, which peg their returns to a market benchmark or index to provide some (but not all) of the upside when the stock market does well and also offer downside protection.

Such annuities can be used to generate guaranteed lifetime income, but I'm not a fan of them. That's not just because many come with high costs that undermine their effectiveness, but also because of their complexity. (If you want to get an idea of what I'm talking about, Google "variable annuity prospectuses" and try reading — and making sense of — a few of those that pop up.)

I think investors are generally better off with investments that are less complicated, easier to understand and not as likely to be laden with high costs. One type of annuity that fits that description is an immediate annuity. The premise with this type of annuity is pretty simple: In return for lump sum of savings, an insurance company agrees to pay you a fixed payment each month for the rest of your life. (You can get payments for as long as either member of a couple remains alive by choosing the "joint life" payment option.)

A 65-year-old man who invests, say, $100,000 in an immediate annuity today would receive about $550 a month for life; a 65-year-old woman would get about $530 a month; and a 65-year-old man-and-woman couple would receive monthly payments of $470 as long as either is alive.

Another type of annuity that's fairly straightforward is known as a longevity annuity (aka, a deferred income annuity). A longevity annuity also makes lifetime payments, except that those payments kick in years after you buy, often 10, 15 or 20 years later. So, for example, a 65-year-old man who invests $50,000 in a longevity annuity might start receiving payments of about $1,800 a month starting at age 85 that would continue for the rest of his life; a 65-year-old woman would get in the neighborhood of $1,400 a month beginning at the same age, while a 65-year-old man and woman couple would receive about $1,100.

The idea behind this type of annuity is that you may feel less anxious about spending assets early in retirement knowing that you can count on those guaranteed payments later in life. (To see how much you might receive from an immediate or longevity annuity investing different amounts at different ages, you can check out this annuity payment calculator.)

Related: 5 questions to ask yourself before buying an annuity

To be sure, both immediate and longevity annuities come with restrictions you need to be aware of. For example, you would typically have no or only limited access to the money you invest in them. But there are ways to deal with such restrictions, the simplest being to limit the amount you invest in an annuity to the minimum necessary to get the level of guaranteed income you need and keep the rest of your savings in a traditional portfolio of stocks, bonds and cash. You can then dip into the portfolio as needed throughout retirement and, if anything is left upon your death, leave to your heirs.

Fact is, there are any number of ways you can arrange your finances to get the retirement income you'll need from the resources you have available. Some may include annuities (as well as different types of annuities), others may not. Call me picky, but what I would want from an adviser is a variety of options, along with projections of how I might fare with different strategies, plus an explanation of the upsides and downsides of each and a thorough breakdown of the costs involved. I'd also want to know if there are any potentially more cost-effective options that the adviser isn't offering to me and, if so, why they're not being presented.

In short, I'd want to be sure I'm not just getting a sales pitch to buy a specific product, especially if that product has "nasty reviews." And if the adviser isn't willing or capable of laying out different income strategies and doing the kind of comprehensive review of them I've outlined above, I'd start searching for an adviser who can.

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