Annuities are pitched as a simple way to turn savings into guaranteed lifetime income.
What the brochures tend to leave out is the fee stack that sits between you and that income.
According to industry research, the average variable annuity carries total annual costs around 2% to 3% of your account value once you add everything up.
Start with the mortality and expense charge, usually 1% to 1.25% a year.
That covers the insurer's costs and profit, and it comes out no matter how your investments perform.
Then layer on fund management fees inside the subaccounts, often another 0.5% to 1%.
A guaranteed income benefit might add 0.9% to 1.5% annually, and that fee is typically charged on your balance, not just the amount you eventually withdraw.
Buy three or four riders and you can push total costs well past 3%.
Many variable annuities also carry surrender charges if you leave early, often 7% in year one, sliding down over roughly seven years.
So the product with the highest fees is also the one that punishes you for walking away.
Fixed indexed annuities avoid some of this, but they often cap your upside with participation rates and spreads.
A cap of 6% means a 20% index year still credits you 6%.
Some also charge a separate income rider fee on top.
Fixed annuities are simpler and cheaper, though they lock your money up and pay a rate the insurer can afford, not the best rate on the market.
Commissions are baked into all of these products, sometimes 5% to 7% of your premium, paid to the agent upfront.
Insurance companies take on real risk, and a lifetime income guarantee has genuine value for some people.
But the salesperson's incentive and your incentive are not the same, and the fee disclosure booklet is long for a reason.
So what should you actually do before signing anything?
Ask for the total annual cost in one number, in writing, including every rider.
Ask what the surrender schedule looks like year by year.
Then compare that against simply buying a low-cost index fund and a plain single premium immediate annuity at the point you actually need income.
The immediate annuity route lets you shop rates across insurers and skip decades of layered fees.
For many retirees, that's the cheaper path to the same paycheck.
It won't make anyone a commission, which is exactly why you rarely hear it pitched.
Our take: annuities aren't evil, but they're sold with a smile and priced with a magnifying glass.
If an agent can't or won't total up the fees in plain language, that's your answer.
Final Thoughts
Walk, and take your money somewhere it can actually grow.