Sales of fixed and indexed annuities hit record levels last year, according to LIMRA, and a big chunk of that money quietly flows back to the companies through fees most buyers never see clearly.
If you or your parents have money in one of these products, it's worth knowing exactly what you're paying.
Annuities come in three main flavors: fixed, indexed, and variable.
Fixed annuities are the simplest and often the cheapest, while variable annuities are the most fee-heavy.
The prospectus for a typical variable annuity can run 100 pages or more, and that length is often the point.
Inside a variable annuity, you'll usually find a mortality and expense charge that runs roughly 1% to 1.5% of your account value every year.
Layer on fund expenses averaging another 0.5% to 1%, and you're already looking at 2% or more before anyone adds a rider.
An income rider that guarantees lifetime payments can add 0.5% to 1.5% annually.
Each one sounds small on its own, but a product with three riders can push total annual costs past 3%.
If you pull money out in the first several years, you can lose 7% of your account in year one, sliding down to 1% by year seven or so.
Indexed annuities hide costs differently.
They don't charge a visible annual fee, but they pay for it with caps, participation rates, and spreads that limit how much market upside you actually capture.
When the S&P 500 gains 20% and your crediting rate lands at 6%, the difference is the fee, even if nobody calls it that.
First, request the full fee table in writing from the agent or company, not a summary.
Second, compare the total annual cost to a plain index fund charging 0.03%.
Third, ask whether you actually need the guarantee, or whether you're paying 2% a year for peace of mind you could get more cheaply elsewhere.
If you already own one, check the surrender schedule before doing anything.
Sometimes waiting one more year saves thousands.
A fee-only fiduciary advisor who doesn't sell annuities can review the contract for a flat hourly rate, which is usually money well spent.
None of this means annuities are always a bad deal.
For some retirees, a guaranteed income floor is genuinely worth paying for.
The problem is when buyers don't know the price.
Our take: annuities are sold on fear and bought on hope, and the fees live in the gap between them.
Before you sign anything, get every number in writing and make the agent show you the total annual cost as a single percentage.
Final Thoughts
If they can't or won't, that silence is your answer.