Im approaching retirement, and the turmoil in the markets this year has me thinking, for the first time, about buying an annuity. I like the idea of predictable income, but I dont like the idea of handing my money, permanently, to an insurance company. What do you think about a person building his or her own annuity? Is there a good way to do this?

Yes, there are ways to create an annuity. And I think its wise to consider how an annuity might help you and your nest egg. But I think the do-it-yourself approach can be difficult for many investors and carries some sizable risks.

To start, Ill focus on the product you seem to be considering: an immediate fixed annuity. In other words, you hand a lump sum to an insurer, which, in turn, guarantees you a monthly paycheck for life. Period. (Well save, for another day, talking about more-complicated products, such as equity-indexed annuities.)

If you wish to build something resembling an immediate fixed annuity, you could, for instance, assemble a TIPS ladder, a collection of Treasury inflation-protected securities of various maturities. Or you could construct a bond portfolio with high-quality corporate and municipal bonds. Both approaches would produce a predictable stream of income.

Even something as simple as a balanced mutual fund, one with a mix of stocks and bonds and a long history of solid returns, could, in theory, serve as an annuity. A good example: (RPBAX) has posted an average annual total return of 9.46% since its start in 1939.

Read this article:
Pros and Cons of a Do-It-Yourself Annuity in Retirement - The Wall Street Journal