Money magazine argues that by properly allocating funds to annuity and stock/bond portfolio, one can substantially reduce the probability of running out of funds in retirement.

The concept is simple. Put part of your retirement savings in an income annuity and then invest the rest in a diversified portfolio of stock and bond funds (or individual stocks and bonds, for that matter).

The annuity payments give you a steady month-to-month income that won't run out. The investment portfolio provides whatever additional income you need and a kitty for unanticipated expenses, plus the long-term growth that can help you keep up with inflation.

This combination has another advantage: It can improve the odds that you'll be able to live off your money for 30 or more years. To get a sense of how much the annuity can help, take a look at the graph above.

It compares how a 65-year-old man who wants to draw 4% from his portfolio in year one, increasing that amount each year for inflation, would fare by managing withdrawals on his own vs. putting some of his money in an annuity.

Until age 85, the manage-it-yourself method works just fine. But the older he gets, the greater the chance that his portfolio won't make it (although in real life, of course, he would probably scale back his lifestyle and cut back on withdrawals).

By contrast, if he stashes 25% of his retirement assets in an immediate annuity, his odds of falling short drop to just 5% at age 95. The reason: The annuity payments, by reducing the amount you have to pull from your savings, limit the damage to your investment portfolio during market downturns.