Hand over a chunk of your savings, collect a check every month for life, stop worrying about the market.
What the brochure tends to skip is the stack of fees sitting between your money and your mailbox.
Annuities are insurance products, not bank accounts, and they come wrapped in layers of costs that can add up fast.
According to industry research firm Morningstar, the average variable annuity carries total expenses around 2% or more per year once you count insurance charges, fund fees, and rider costs.
On a $200,000 contract, that's roughly $4,000 annually, gone before you see a dime of growth.
The first layer is the mortality and expense charge, often 1% to 1.25% a year.
That pays the insurer for the guaranteed death benefit and for managing the account.
It shows up in the fine print as an annual percentage, so it feels abstract, but it compounds against you every single year.
Then come the subaccount fees, which are basically the mutual fund expenses inside the annuity.
Stack a living benefit rider on top, the kind that guarantees income even if markets tank, and you can tack on another 0.5% to 1.5% annually.
Suddenly a product sold as "safe" is quietly charging you more than most actively managed funds.
If you need to get out early, typically within seven years, the insurer can take 7% of your account in year one, sliding down to 1% by year seven.
Where this gets uncomfortable is who's selling it.
Most annuities are sold by commission, and that commission can run 4% to 8% of your initial deposit, paid upfront by the insurer and baked into the product.
Your advisor may not charge you a visible fee, but the annuity already paid them.
That's not automatically bad, but you deserve to know the number.
Fixed indexed annuities have their own quirks.
They promise growth tied to a market index, but with caps, participation rates, and spreads that limit how much you actually capture.
A 10% index gain might translate to 4% credited to your account.
Meanwhile, the insurer keeps the difference.
Read the cap and participation rate before you sign anything.
A plain single premium immediate annuity, where you hand over a lump sum and get lifetime income starting right away, is far simpler and often carries lower internal costs because there's no investment subaccount to manage.
If you already own an annuity, pull out the prospectus and find the fee table near the front.
Then ask yourself whether the guarantees you're paying for are worth that annual drag.
Sometimes the answer is yes, especially for people who truly need lifetime income and won't touch the money for decades.
The bottom line: annuities aren't scams, but they're sold with a smile and priced with fine print.
The person across the table benefits the moment you sign, not necessarily the moment you retire.
Final Thoughts
Ask what the commission is, ask what the total annual cost is, and get both answers in writing before you commit a single dollar.