The pitch usually arrives in a glossy mailer or a friendly seminar at a chain restaurant.
Guaranteed income for life, no market worries, a check every month until you die.
What the brochure rarely highlights is the stack of fees baked into the product before you ever see a payment.
Annuities are insurance contracts, not investments in the traditional sense.
That distinction matters because insurers charge for the guarantees they provide, and those charges come out of your account balance or your payout whether the market goes up or down.
According to industry research, the average variable annuity carries total costs of roughly 2% to 3% per year once you add everything up.
On a $200,000 contract, that's $4,000 to $6,000 annually, money that compounds against you over decades.
The first layer is the mortality and expense charge, often 1% to 1.25% a year.
That pays the insurer for the death benefit and administrative overhead.
Then come the underlying mutual fund fees inside the annuity, typically another 0.5% to 1%.
Add a living benefit rider, the feature that guarantees income even if markets tank, and you can tack on another 0.5% to 1.5%.
Some contracts also charge surrender fees if you pull money out early, starting as high as 7% and stepping down over seven years or so.
Here's what the salesperson may not emphasize: those riders often come with fine print that limits how much you can withdraw, caps annual increases, or lets the insurer raise charges later.
A "guaranteed" income stream sounds simple until you read the conditions attached to it.
Fixed indexed annuities play the same game with different math.
They promise a portion of market gains while protecting against losses, but the caps and participation rates mean you might capture only a fraction of a strong year.
Meanwhile, the insurer keeps the difference.
A 10% index gain could translate to a 4% credit on your contract after caps and spreads, with fees still deducted.
The agent collecting a commission of 4% to 8% on your initial premium, paid by the insurer but ultimately funded by your money.
The insurer, which invests your premium and keeps the spread.
And you, only if you live long enough and the guarantees actually pay off as illustrated.
That doesn't make every annuity a bad deal.
Immediate annuities, where you hand over a lump sum and get lifetime payments starting right away, can be a reasonable way to cover basic expenses in retirement.
Shopping directly with a fee-only advisor or a low-cost provider like an online brokerage can cut costs dramatically compared to a commission-heavy contract sold through a seminar.
Before signing anything, ask for the full fee table in writing, the surrender schedule, and the exact formula for any income rider.
If the agent can't or won't put it in plain numbers, that's your answer.
Compare the total annual cost against a simple mix of index funds and a Treasury ladder.
Often the DIY route wins by a wide margin.
The uncomfortable truth is that annuities are sold, not bought.
Nobody wakes up craving a complicated insurance contract with seven layers of charges.
The product exists because the commissions are generous and the math is opaque.
Final Thoughts
If you want guaranteed income, price it out carefully and treat the sales pitch as what it is: a pitch.