(MONEY Magazine) – You've no doubt seen those AXA Equitable commercials in which an 800-pound gorilla advises a couple nearing retirement to consider annuities as a way to guarantee income for the rest of their lives. It's part of a campaign by insurers to raise awareness about the need to turn retirement assets into an income you won't outlive.

I applaud the goal (and enjoy those ads), but I object to the way many insurance companies suggest you achieve it. Instead of focusing on true income annuities, in which retirees effectively pool their money in return for lifetime payments, insurers are pushing what I consider fake income annuities, which deliver assured income of sorts, but at a very hefty price.

What's Behind the Pitch

The product in question is a variable annuity with a "guaranteed withdrawal benefit for life" rider, which typically promises to pay you 5% of your initial investment annually for as long as you live—or $25,000 a year on a $500,000 investment. Should you need more cash, say, to pay higher than expected bills, you can dip into your account (normally not allowed with a traditional income annuity). When you die, your beneficiary generally gets your original investment minus any withdrawals or your account value, whichever is higher. With a traditional annuity, heirs typically get zip.

But, in fact, there's a lot less here than meets the eye. For one thing, those guaranteed payouts don't increase with inflation, so your purchasing power will erode over time. True, the variable annuity allows you to invest in stock and bond portfolios, so your account's value can grow over time, giving you the option to "ratchet up" your income in later years. The catch: The fees are so high—3% or more a year—that your investments generally must earn more than 8% a year for your balance to rise after the 5% payout. Impossible? No. But not an outcome you can count on either. And if the annuity's value doesn't grow enough to generate higher income, but you dip into your account for extra cash anyway, the guaranteed payout can drop sharply.

A Better Alternative

Fortunately, there's a better way to create a lifetime income that keeps pace with inflation while allowing you access to your savings for emergencies. Simply put a portion of your nest egg in a traditional income annuity that pays a guaranteed monthly income for life based on your age. Then invest the rest in a mix of low-cost stock and bond funds that you can tap for the rest of your annual income plus any extra cash you may require.

True, only the annuity portion of your income is guaranteed. But since the expenses in a well-chosen fund portfolio are so much lower than what insurers charge, your chances of running through your fund assets are slim. Your fund portfolio is also more likely to grow, giving you higher income down the road.

So if you're in or nearing retirement, take the gorilla's advice and consider putting money into an annuity. Just make sure it's not a high-priced fake.

DIY RETIREMENT INCOME FOR LIFE

You can get steady income that's likely to grow over time by dividing your money between an immediate income annuity and a portfolio of low-fee mutual funds.

START WITH SAVINGS OF $500,000

$250,000 goes into income annuity producing

$20,000 A YEAR

Shop for the best deals at Immediate Annuities.com.

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$250,000 goes into low-cost mutual funds producing

$5,000 A YEAR

You can increase your income as the fund portfolio grows.

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ANNUAL INCOME $25,000

NOTE: Annuity income is for a single lifetime annuity for a 65-year-old man.

SOURCE: ImmediateAnnuities.com.

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