Older investors had enough to worry about with the stock market jolting their IRAs and Uncle Sam's bonds paying less than the price of an early bird special. Now, add to the mix the shrinking benefits from annuities.

In recent months, longtime annuity providers have begun scaling back on some payouts, changing rules or raising fees to the point where many financial advisers are now wondering whether their "value propositions" even make sense for most clients. The reason for the changes? The same market volatility and paltry Treasury rates that, in theory, drew income-seeking investors to annuities in the first place are actually making it hard for annuity providers to turn a profit at least with the payout formulas they offered just a couple of years ago, says Donnie Ethier, senior analyst at Cerulli Associates.

One recent tweak from MetLife, for example, reduces the withdrawal rate on one of its guaranteed minimum income benefit riders on several variable annuities from 5.5 percent to 5 percent. (A spokesperson says it continues to "de-risk" and make product changes as necessary, in light of the turbulent markets.) Other insurers have been reducing guaranteed rates, linking fees to volatility or raising the cost of riders. "The items that go into the calculation have become variable, so it's harder to understand what you are going to get," says John McCarthy, product manager at Morningstar's insurance solutions group. The factors are so in flux, in fact, that some advisers say they are reevaluating whether the products make financial sense. Sales of variable annuities, which are experiencing the brunt of changes these days, fell almost 8 percent in the first quarter from a year ago, to $36.2 billion; this, after several years of gains, according to Morningstar. Fixed annuity sales fell about 9 percent, to almost $17 billion over the same period, notes Beacon Research.

The one bright spot, say analysts, is in a category that has long been overlooked: income annuities. Sales jumped 23 percent last quarter, piling on to increases in 2010 and 2011. And although the "income" in these income annuities has fallen along with interest rates, the payouts often trump other sources, experts say. A 70-year-old male can collect some $620 a month for a $100,000 income annuity, says data firm Cannex. While down 11 percent from 2010, it's still a lot richer than what the same investor would see from a Treasury bond portfolio or similar fund. The edge, says Matt Grove, vice president at New York Life, comes from the fact that such annuities gain by pooling the investments of thousands of people with different life expectancies. As a result, that 70-year-old can essentially nab a 4 percent yield from the income annuity, double the yield of short-term bonds.

But for some advisers, the low rates and recent tweaks are just too much. Michael Bischoff, a partner at Bloomington, Minn., financial advisory firm Webb Financial Group, had for decades built annuities into retirement plans. The changes, he now says, "make it virtually impossible to present them to clients."