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Annuities: 10 Things You Should Know

Out of favor for a long while, annuities — the controversial and often misunderstood long-term insurance contracts — are getting more attention from investors due to higher interest rates. In 2022, annuity sales crushed the previous record — set way back in 2008, when investors fled to annuities for safety during the financial crisis. Today, some contracts are offering a guaranteed return of over 5% a year.

“We’ve seen a pretty dramatic increase in annuity receptiveness and sales,” says Matthew DiGangi, head of annuity distribution for MassMutual(opens in new tab).

Annuities are purchased upfront, often through a single, large, lump-sum payment. The annuity pays a return on the money you put in and when you’re ready, turns the balance into gradual income payments over time that can be guaranteed to last for your lifetime. Sounds simple and uncontroversial, right?

Yet annuities are hotly debated in the financial community, with some saying they’re a valuable retirement tool while others can’t stand them. Prominent in this camp is investment analyst Ken Fisher(opens in new tab), who doesn’t like their fees and returns, compared with other investments. “I’d die and go to hell before selling an annuity,” Fisher declares in his frequent TV commercials.

If you’re considering buying an annuity, make sure you know what you’re getting into. Contracts can be complicated, and changing your mind after signing up can be costly. And sometimes impossible.

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