Sales pitches for annuities tend to lead with guaranteed income and peace of mind.
What they often skip is the fee stack tucked inside the contract, which can quietly shave a meaningful slice off your returns for years.
Annuities are insurance products, not bank accounts or index funds, and they carry costs most people never see on a statement.
The insurance agent, the company, and the fund managers all get paid — and in most cases, that money comes out of your balance before you ever see a return.
The most common charge is a mortality and expense fee, usually 1% to 1.25% of your account value every year.
That doesn't buy you anything you can point to; it compensates the insurer for managing the pool of policyholders.
Layer on fund management fees of 0.5% to 2%, and you're already well past what a basic index fund charges.
Most annuities lock you in for five to ten years, and cashing out early triggers a surrender charge that often starts at 7% and steps down gradually.
That's not just a fee — it's a barrier designed to keep you from leaving.
Riders sound like add-ons but act like fee magnets.
A guaranteed income rider might cost 0.5% to 1.5% annually, and a long-term care rider adds more on top.
Each one gets pitched separately, and each one compounds the drag.
Advisors who sell these products typically earn a commission of 4% to 8% upfront, which is worth remembering when someone calls the deal a perfect fit.
Variable annuities, the kind tied to market performance, tend to be the most expensive.
Fixed and immediate annuities are simpler and often cheaper, though they come with less flexibility.
The structure matters more than the label on the brochure.
Ask for the fee table in writing before signing anything, and compare it against a plain index fund's expense ratio.
Question whether every rider is necessary, and check how long the surrender period runs.
If an agent won't put the numbers on paper, that silence is your answer.
One more thing worth knowing: annuities inside an IRA or 401(k) are frequently redundant, since those accounts already offer tax deferral.
Paying for a feature you already have is a common and costly mistake.
The real question isn't whether annuities are good or bad.
It's whether the specific fees you're being quoted are worth the specific guarantee you're getting.
Final Thoughts
For many buyers, they're not — and the person selling you the product is the last person likely to say so.