How to buy annuities Annuities come in many styles, but they share a common trait: The mere mention of them brings worried frowns to financial planners. That's because many of these investment-cum-insurance products come with steep fees and confusing restrictions, detailed in contracts that are inches thick and difficult to understand. Combine the complexity, fees and restrictions — some products charge as much as 8% if you pull money out in the first year or two — with commissions as high as 10% for the agents selling annuities and, some planners say, investors often end up with products that are unsuitable for them. Still, annuities can hold a rightful place in some investment portfolios — but choose carefully. Keep an eye on these items if you're considering an annuity: • Fees and restrictions: Annuities' annual expenses vary widely. Find out how much you'll shell out each year, and assess whether those fees are worth the benefits. Also watch surrender charges. Teaser rates: Confirm the rate of return the insurance company is promising, and for how long. For instance, a fixed annuity's guaranteed rate may decline after an introductory period. • Tax benefits vs. costs: You'll pay ordinary income tax on payouts from your annuity, unlike the more favorable long-term capital gains rate you'll pay on a regular mutual fund. • Inflation costs: Even though guaranteed income is a major benefit of annuities, that income stream might not look so attractive once inflation takes its toll. You'll likely pay extra for inflation protection, but it's probably worth it. • Obtuse contracts: Given the complexity of these contracts, have an independent financial adviser assess the details before you get locked in. via marketwatch