With interest rates still elevated and a shaky stock market spooking retirement savers, sales of these insurance products hit record levels last year.
But the same contracts promising guaranteed income often carry a tangle of fees that can quietly shave thousands off your nest egg over time.
That gap between the pitch and the fine print is where retirees get hurt.
It's a category, and the fees vary wildly depending on which type you buy.
Knowing the difference could save you real money.
Fixed annuities are relatively simple: you hand over a lump sum, the insurer pays a set interest rate, and costs are often baked in rather than billed outright.
Variable annuities are the expensive ones.
They bundle mutual-fund-like investments with insurance features, and the charges stack up fast.
The first layer is the mortality and expense fee, usually running around 1% to 1.25% of your account value every year.
That pays the insurer for the insurance component.
Then come fund management fees, which can add another 0.5% to 2% depending on what you pick inside the contract.
Already you're looking at 2% or more annually before any extras.
That can cost another 0.5% to 1.5% a year.
Add a death benefit enhancement or a long-term care rider and the total can climb past 3% annually.
On a $200,000 account, that's $6,000 drained every single year, whether the market rises or falls.
If you want out early, most contracts hit you with a penalty that starts around 7% and steps down over a surrender period that can last seven to ten years.
That locks your money in place and makes comparison shopping nearly impossible after you've signed.
Insurance agents selling these products can earn 4% to 8% upfront on some contracts.
That payout doesn't come from the insurer's pocket.
It's built into the fee structure you're paying.
Ask for the full fee table in writing before you commit, not a summary.
Compare the total annual cost against a simple alternative: a low-cost index fund paired with a Treasury ladder.
For many retirees, that combination delivers similar stability at a fraction of the price.
If guaranteed lifetime income is the real goal, look at income annuities, also called immediate annuities.
They typically have far lower ongoing fees because you're not paying for an investment account wrapper.
You hand over a lump sum and get a check for life.
Simpler, cheaper, and often better suited to the job.
Finally, check the insurer's financial strength rating.
A bargain-priced contract from a shaky company isn't a bargain at all.
Best and Moody's tell you whether the promises behind the paperwork are likely to be kept. **Our take:** Annuity fees are not inherently evil, but opacity is.
The products can make sense for certain retirees who want a pension-like paycheck and can stomach the cost.
The mistake is buying one without understanding the drag.
Final Thoughts
If an agent can't clearly explain every fee in plain English, walk away and find someone who can.