You've just retired. You have a hefty sum of money thanks to your diligent saving habits. Now the question is: What do you do with it?

One option is opening an immediate variable annuity. This product allows you to receive a steady stream of income right away. Nervous about the peaks and valleys of Wall Street? Some immediate VAs even guarantee that your monthly payments will never fall below a percentage of your initial payment.

The best of both worlds?

When you buy an immediate variable annuity, you pay a lump sum to an insurance company and start receiving monthly payments right away. As with any variable annuity, your payments will rise or fall, depending on the performance of your investment. You can be guaranteed lifetime income and a death benefit paid to your beneficiary when you die.

For some investors, immediate variable annuities are a more attractive option than immediate fixed annuities because you aren't stuck with receiving the same amount of cash each month. If your investments perform well, you can get a bigger check each month and beat the cost of inflation, which you won't do if you have a fixed annuity.

The average consumer looking to invest in an immediate VA is someone approaching retirement age with a large sum of money who wants steady income while earning additional money in the stock or bond market, according to Mark Mackey, president of the National Association of Variable Annuities (NAVA).

Immediate variable annuities have been around for more than a decade, but they have grown in popularity only during the end of the 1990s. Rick Carey, editor of the VARDS report, which tracks VAs, predicts that immediate VAs will eclipse immediate fixed annuities in sales and popularity because they appeal to aging baby boomers who are generally willing to take on more risk. That willingness may come out of necessity. "I don't think it's any secret that the baby boomers haven't been saving enough," Carey says.

Comfort at a cost

Immediate VAs offer a number of benefits: guaranteed income, the chance to earn money in the stock market, and a death benefit. But the more benefits that are guaranteed, the higher the charges are going to be. The fees for immediate VAs vary by company, but they generally fall around 1.8 percent.

Most advisors says that people who are not of retirement age should steer clear of immediate VAs. It would be far cheaper for younger people to maximize their 401(k) plans first.

Though other options may be cheaper, they are not as secure. Immediate variable annuities guarantee lifetime income, where IRAs or 401(k)s do not, says Richard Austin, president of Templeton Funds Annuity Co. Austin says that people could create a "financial disaster" by not being prepared to outlive their life expectancy. "For someone to guess how long they are going to live, it's mission impossible," Austin says. "You buy an annuity to offset the risk of living too long."

Because some investors get queasy about a variable annuity's unpredictable payouts, some immediate VAs guarantee a percentage of your first payment. But this guarantee comes with a price. The fee if you have the 80 percent guarantee is 1.4 percent of what you make in your investment. Without it, the fee is 0.55 percent for some company plans.

Maloney of Moody's notes that some insurance executives areskeptical of such "safety net" features. He says that some reinsurance companies — which provide cash reserves to insurance companies in order to pay claims — have declined to back immediate VAs, fearing they will have to pay out too much. A guaranteed minimum payout could be particularly costly to insurers if clients live beyond their estimated life expectancy by 20 or 30 years. "It's almost impossible to figure out how many people will have [the guaranteed minimum feature] 30 years from now," he says. "Who knows how much money these companies will have to pay out?"

A company's ability to pay back its customers is a risk you take with any investment. Whenever you decide to do business with a company, you have to look at its financial stability.