Boost Your Variable Annuity

That's the good news. It's also the bad news, for the bulk of the GMWB buyers. You probably intended to hold the annuity for several years before starting withdrawals. Over that time, you expected its value to have grown by enough to pay more than the minimum $5,000 a year.

Now that can't happen until your investments recover everything they lost, plus each year's costs, and costs are compounding at a annual rate of almost 3.5 percent. Your annuity will be underwater for a long time.

Luckily, there's another way to increase your payout, said Colin Devine, managing director of Citigroup Investment Research. Here's his idea, using a $500,000 annuity with a 5 percent annual withdrawal rate:

Start your withdrawals right away, taking $25,000 a year for 10 years. If you're 60 and older, you can do it without reducing your lifetime income guarantee. Withdrawals are a tax-free return of principal when an annuity has no earnings.

Flip those annual withdrawals into new GMWB annuities. Stock prices are low, so there's a good chance that the value of the new annuities will increase, paying you a future 5 percent income on a rising base. At the same time, you will continue to collect $25,000 a year from the first annuity for life. Check to be sure that this strategy doesn't interfere with the annuity's death benefit, Loffredi added.

You might also consider flipping the withdrawals into stock-owning mutual funds.

Insurance companies didn't expect the buyers of GMWBs to start withdrawals right away, and they didn't hedge for it, Devine said. "They're going to need the reserves they're asking the insurance commissioners to let them reduce."

If you're buying an annuity, buy from a large, AAA-rated company. "I don't think any life insurance companies are going down the tubes," said Steven Schwartz, life-insurance equity analyst at Raymond James & Associates in Chicago. But still. . . .

Jane Bryant Quinn, author of "Smart and Simple Financial Strategies for Busy People," is a Bloomberg News columnist. Alexis Leondis contributed to this column.