I'm 69 and thinking about buying a fixed annuity. Is this a smart move?

These days, fixed annuities look appealing to many panicky retirees who've watched their portfolios shrink in the bear market. The beauty of these products is that they offer a guaranteed income stream for the rest of the purchaser's life — regardless of what happens to the stock or bond markets.

But don't rush out to buy one just yet. The certified financial planners we spoke with said that while a fixed annuity can indeed be a good investment, they don't make sense for everybody.

First let's talk basics. As you probably know, fixed annuities come in two forms: deferred and immediate. Deferred fixed annuities earn tax-deferred interest over a certain number of years before the holder can start taking penalty-free withdrawals (after age 59 1/2). (This is true regardless of whether they're held in a tax-deferred or tax-free IRA account.) By contrast, immediate fixed annuities typically start providing payments one month after the premium is received. The tradeoff for this luxury? Once the purchaser hands over the principal, she will never get it back.

Immediate fixed annuities often appeal to people already living off their retirement savings. To calculate the fixed amount of money the annuitant will receive every month, an insurance company uses a formula that weighs the annuitant's life expectancy (as determined by age and gender) and the premium he or she will pay, against the current interest-rate environment. Needless to say, if the purchaser dies soon after buying the annuity, the insurance company would make a tidy profit. But those who live long after payments have begun can make a nice return on their investment.

Generally speaking, immediate fixed annuities come in three models, explains Marilyn Bergen, a CFP with CMC Advisers in Portland, Ore. First is the "life annuity," in which the insurance company pays the annuitant until he or she dies. Married couples can select the "joint and survivor annuity," in which the checks keep coming until both spouses are dead. (Logically, with this option the checks will be smaller than with a life annuity.) Finally, there's the "life annuity with term certain," where payments are distributed to the annuitant's beneficiary for a certain number of years after the annuitant's death. This type of annuity tends to pay less than a life annuity, but more than the joint and survivor annuity.

There are, of course, some drawbacks to immediate fixed annuities. First and foremost, you're completely giving up control of your money — once annuitized, your savings belong to the insurance company. You also won't benefit from a rising market. "Once you put the money in a fixed annuity, you're locked in where you are; there's absolutely no upside potential," says Bergen.

Moreover, with interest rates at their lowest levels in years, new annuitants would receive lower monthly payments than they would if they held off on their purchase until interest rates rise, says CFP Scott Bordelon of Financial & Investment Management Advisors in New Orleans. Compounding the problem, as the years tick on, those flat payments will be worth less because of inflation. So what may seem like a sustainable payment now might seem measly in, say, 20 years. (Some fixed annuities may offer an inflation adjustment, but this feature will come at a steeper price.)

Still think this is a wise investment? Keep in mind that, in this industry, it pays to be a savvy shopper. Unscrupulous financial-planner types could sell you an annuity that's better for their finances than yours, thanks to the fat commissions (running as high as 10% to 25%) they receive for the sale. Our advice would be to shop at low-cost fund families, like Vanguard, that offer fixed annuities at no commission. One way to get a sense of what sort of monthly payment you may be eligible for through an insurance company is to visit WebAnnuities.com, an annuity broker has a calculator on its site.

The timing of the purchase should also be considered. For example, it might be worthwhile to wait for interest rates to rise. (That is, if you anticipate that they will rise in the next few years.) Alternatively, those with significant retirement savings may want to use some (but not all) of their funds to buy a fixed annuity, while investing the rest of their portfolio elsewhere. (This clearly makes sense for those looking to leave something behind to heirs.)

No matter what, people planning to buy an annuity from an insurance company should go with one that has a rating of AA or higher from a credit-rating agency such as Standard & Poor's or Fitch, says Bergen. After all, you want to find a company that's going to last longer than you will.