Here's how millennials can buy retirement income

If you are not scared of dying broke, you probably should be. It's a concern that's fairly unique to today's savers as many of those before us had pensions, guaranteeing them at least some income for life beyond Social Security.

By contrast, two-thirds of working millennials — defined here as those born from 1981 to 1991 — say they have nothing saved for retirement, according to research this year from the National Institute on Retirement Security. The fault isn't all their own: Close to half have no retirement plan at work.

Matt Carey hopes to change that. Carey is one of three co-founders of Blueprint Income, a New York City startup that launched nationwide this year. The company is offering the "personal pension" — a monthly paycheck in retirement, accessed by purchasing income annuities in small pieces over the decades before.

The product has pros and cons — which we will get into here — but it has brought a new audience to annuities: About 30 percent of Blueprint Income's customers are in their late 20s or early 30s.

In case you are unfamiliar, annuities are essentially insurance products that turn a lump sum from the purchaser into an income stream for life. They have a reputation for being complex and rife with fine print and fees. It isn't misplaced. Annuities come in many shapes and sizes, making them confusing and potentially costly.

However, financial advisers occasionally recommend simpler versions, like fixed-income annuities, to clients at risk of running out of money in retirement.

Blueprint Income's personal pension uses deferred fixed-income annuities and replaces the lump sum for a model that mimics how a typical investor saves for retirement: Through small, regular contributions. Blueprint requires an initial investment of $5,000, but subsequent amounts can be as little as $100 a month. At retirement, those investments turn into a monthly paycheck back to you.

For example, a 35-year-old woman who wants to retire at 67 can get $4,000 a month retirement income by making the initial $5,000 required contribution, then subsequent contributions of $100 a month. To obtain that $4,000 monthly benefit, those contributions will also need to increase annually 13 percent, meaning she will need to invest $113 a month the second year.

Contributions are held at the insurer; Blueprint Income is simply the middleman. Contributions can be made with funds in an IRA or a savings, checking or brokerage account.

Carey, who is 32, came up with the idea for Blueprint Income while working at the U.S. Treasury Department.

"You look at the data and you realize that something has to give, and a big part of that to me is to give people a simpler mental model for how to save for retirement," Carey says.

The ideal, he says, is to have enough guaranteed income in retirement to cover fixed expenses, which ensures you won't outlast your money and allows you to weather the effect of market fluctuations on the money you've invested.

As with any financial product, you need to dig into the details here.

First, the cost. Consumers don't pay a direct fee for the pension, but Blueprint Income earns a commission of 1 percent to 5 percent from insurers. That cost is factored into and indirectly reduces the amount of income you receive in retirement.

If you stop contributions, your monthly benefit will lock to reflect what you have contributed so far.

Along with losing liquidity, you are also giving up potential investment returns, said Ashley Foster, a certified financial planner. There's a reason annuity purchasers tend to be older: They are typically already dialing back their equity allocation in preparation for retirement.

But Carey — who said Blueprint Income acts as a fiduciary — isn't suggesting anyone forgo investing in stocks for his pension product. Rather, he sees it as partial substitute for bonds, and a way for investors to buy into annuities over time. That makes the product best-suited to those who are risk averse. Younger investors, on the other hand, should have most if not all of their money in stocks.

And if you die early? Any money you contributed that wasn't paid out will be distributed to your beneficiaries.