Sales pitches for annuities tend to lead with guaranteed income and peace of mind.
The fee disclosure, if you ever see it clearly, tends to show up much later, buried in a prospectus that runs longer than most novels.
Annuities are insurance products, not bank accounts, and every layer between your money and the payout gets paid for somehow.
Start with the commission, which is baked into the product rather than billed separately.
A salesperson pushing an indexed or variable annuity can earn a cut worth several percent of what you put in.
You never write that check directly, which is exactly why it's easy to miss.
Variable annuities often carry mortality and expense fees, fund management fees, and administrative costs that can stack up past 2 percent a year.
Indexed annuities swap the visible expense ratio for caps, participation rates, and spreads that quietly limit your upside instead.
If you try to move your money in the first several years, you can owe a penalty that starts around 7 percent and slides down slowly.
Some contracts make you wait a decade before you're fully free.
Living benefits and death benefits sound generous until you read the fine print.
Each rider has its own annual cost, often another 1 percent or more, and the guarantees typically apply to a base amount rather than your full account value.
Here's the part the brochures skip: if you die holding a variable annuity inside a retirement account, your heirs may owe income tax on the gains.
That's a worse outcome than inheriting a regular brokerage account, where the cost basis steps up and the tax bill largely disappears.
A plain income annuity, sometimes called a single premium immediate annuity, can be simple and reasonably priced, and it can genuinely help someone who wants a paycheck for life and won't need the lump sum back.
The problem is the complicated versions sold to people who never asked for complexity.
Ask for the total annual cost in dollars, not percentages, and make them write it down.
Ask what the surrender schedule looks like year by year.
Ask how much of your first-year deposit goes to the person selling it.
If the answers arrive with a lot of hand-waving, that's information too.
Compare whatever you're offered against a low-cost index fund plus a simple Treasury ladder, and see whether the guaranteed version is worth the gap.
The closing thought: annuities solve a real problem for some retirees, but the industry's fondness for opaque fees means the burden of diligence falls entirely on you.
Final Thoughts
Treat every pitch as a negotiation, get the numbers in writing, and walk away from anyone who won't put them on paper.