With the choppy economy and annuity critics seemingly popping out of the woodwork, what motivates boomers buy annuities?

After all, there are plenty of choices–bank certificates of deposit, stocks, bonds, mutual funds, managed accounts and more.

The motivator is the product that best meets the boomer’s need, particularly where retirement income is concerned, say industry sources.

Annuities have had bad press in years past, allows Greg Reynholds, vice president-asset management for Lenox Advisors, Inc., a New York firm specializing in the high net worth market.

But the guarantee features added to annuities in recent years–such as guaranteed income riders–have created incentives for boomers to look at annuities for a portion of their portfolio, he says. They use the products to meet retirement income needs, he says.

His firm does a lot of client education around the financial and retirement plan and about the various products that can be used to meet plan objectives, Reynholds points out. The recommended allocation is generally for 5%-10% to go into annuities, primarily variable annuities with guaranteed living benefits.

That’s assuming the annuity fits the client’s overall strategy, he stresses.

“We don’t want clients to be in a situation where, when they retire, they find 50% of their net worth has been erased,” due to a market drop, for example. A VA’s guaranteed floor on income payouts addresses that concern, he notes.

The guarantees open up another motivator for boomers, he indicates. “Boomers can invest more aggressively, because they know their income is guaranteed.”

People do tend to become more conservative as they age, Reynholds allows. “But if you’re going to live 30 or 40 years in retirement, you can’t be so conservative.”

Boomers could opt for other conservative choices, like Treasury bills, CDs and bonds, he says. “But then you run the risk of not outpacing inflation, or even keeping up with inflation.” He says his firm educates on these points, and boomers do agree with the recommendations.

“Some boomers don’t want to put money into any investment, when the market is down,” points out Laura Harris, principal of Laura Harris Agency, Inc., Corpus Christi, Texas. And, as they grow older, they become more risk averse, she says.

So she too takes a client education approach, first checking out the boomer’s risk tolerance. For instance, she will ask boomers to specify, on a scale of 1-10, if they want to have 100% security or to take lots of risk.

Those in the 1-3 range usually want safe money options, she indicates. Often, these boomers will have CDs, she says, noting that “they like the FDIC guarantee, even if it pays a ridiculously low rate.”

Depending on the plan and objectives, she continues, she might offer them a fixed annuity. Once she shows how the annuity compares to CDs–better interest rate, tax deferral, etc.–she says she encounters “few, if any” objections to moving some of the money into an annuity.

For those in the 7-10 range, Harris might suggest a VA with income guarantee and also a guaranteed return.

As they age, she observes, boomers become increasingly concerned about outliving their funds. Many who are near or at retirement still have CDs, she says, noting this is often “because they don’t know what else to do with their money, or because grandpa suggested they put the money there” for the FDIC guarantee.

In many cases, she notes, “the most education these boomers have had on retirement income is from the retirement program at work.”

So she educates these boomers, “like a teacher,” about retirement. She uses a chart depicting today’s retirement realities (declining traditional pensions, Social Security uncertainties, etc.) to help them see what is happening.

The message she delivers is: “You’re personally responsible for your retirement; it’s crucial that you be proactively involved in planning for it.”

Getting to specifics, she urges employed boomers to put money into their 401(k), at least up to the employer match and to the maximum allowed if possible. “It’s in their best interest for me to do this,” she says. “It also helps build trust with the client.”

She also discusses various solutions for income needs, not just annuities.

Some boomers are initially overwhelmed at the variety of products and solutions, she says. Others are a little apprehensive, too, she adds, “especially if they’ve consulted other advisors previously who did not do a good job of education.”

Though boomers do know a lot more about financial products than people did 20 years ago, Harris says they still want to be educated and to understand options. But she doesn’t discuss products, including annuities, until she identifies the person’s needs and risk tolerance.

Her conclusion: “When boomers are looking for security, they do move money into annuities.”

Rob Grubka, vice president-individual annuities, Lincoln Financial, Hartford, Conn., agrees. The motivation to move into annuities comes out of first having a conversation with the advisor about building a long-term plan for predictable retirement income, he says.

Talking about what the boomer is trying to accomplish is more meaningful than talking about products and features, even upside potential, he says.

That discussion becomes even more meaningful when retirement is just a few years away, Grubka continues. That’s when the boomers “can better visualize what retirement will mean to them, and what their goals, lifestyle and activities will be. Then they can be more specific about income needs above the stable source of income (which pays for housing, food, energy, etc.)”

But, he cautions, none of the annuity features–say, VA features like rollups or guarantees–matter much until the boomer actually uses that money for income.

When reviewing the boomer’s situation and goals, advisors should ask what products the boomer already owns. See if any of these can help meet the goals, he suggests, and then “identify the gaps.”

If the advisor thinks a VA could help fill the gap, Grubka has this reminder: what ultimately moves boomers is the predictability of the VA guarantees and features. “Boomers recognize that they haven’t accumulated enough money so they need market exposure with downside certainty on their income,” he explains.

The retirement income market will grow, he predicts, and boomers will want their retirement income to grow, too–to keep up with inflation, for instance.

Using just one product is not the answer, he stresses. Advisors will need to diversify the tools and services they use, he says, and they will also need to include flexibility to both plan and products so they can meet the boomer’s changing needs over the 20-30 years many will spend in retirement.

As part of this process, the advisor can point out that “you can run out of money with CDs and mutual funds, but not with an income solution in an annuity.”

Most large companies are still biased toward presenting their own product as the way to go, without assessing market needs, contends Aamer Baig, managing partner-financial services practice at Chicago-based Diamond Management & Technology Consultants.

“Often, they start with a product–like an annuity–and then try to figure out to whom to sell it,” he says, citing research his firm has done with large companies in financial services and insurance.

Instead, Baig says, firms should first ask, which consumers does this product fit, and what problems does it solve?

“Understand boomers’ needs and then come up with solutions to get the boomers where they want to go,” he says.

Firms, including advisory firms, encounter difficulties when they don’t do that, he maintains. For instance, one wealth management firm he worked with had designed all services and products for affluent, sophisticated boomers with over $1 million in net worth. But in reality, Baig says, many of the clients were not affluent– “they had a strong need for products that would help the save for retirement and for client education and advice.” The actual customers would be well served if offered “annuities with education,” he says.

Annuities are just one solution, Baig stresses. “It could be that a mutual fund is the solution, or an annuity with a guaranteed income stream.”

Advisors need to ask, “what is the best way to do achieve the goal without being perceived as selling and pushing?” he says. “Also: is it right for this client? What are the (client’s) driving forces?”

If the boomer has over $1 million in net worth and manageable debt, consider products for asset protection and wealth transfer, he suggests. If concerned about today’s upheaval in the credit markets, though, “several products might be considered to offer safety–bank accounts, CDs, mutual funds, index funds, exchange traded funds, bonds–as well as annuities.”

But if income security is the goal, an annuity would be a consideration, Baig says. But so would a reverse mortgage.