Annuities are sold as a way to turn savings into a guaranteed paycheck for life, and for some retirees that predictability has real value.
What gets lost in the pitch is how many different hands take a cut along the way.
Before you sign anything, it helps to know exactly which fees you are paying, because they compound against you for decades.
Start with the commission, which you never see as a line item.
A salesperson who sells you an indexed or variable annuity can earn anywhere from 4% to 8% of your premium upfront, according to industry filings.
On a $100,000 deposit, that is up to $8,000 leaving your account on day one.
You are not handed an invoice, which is exactly why it stays invisible.
Variable annuities often carry mortality and expense fees around 1% to 1.5% a year, plus fund management fees of another 0.5% to 1%.
Layer on riders like a guaranteed income benefit and you can add 0.5% to 1.5% more.
Stack those together and a single product can quietly drain 2% to 3.5% of your balance every year.
If you want out early, most contracts hit you with a penalty that starts around 7% and steps down over five to ten years.
That means a bad fit can lock you in place for nearly a decade, and leaving costs more than staying.
Indexed annuities add their own math problem.
The insurer credits you based on a market index, but caps, participation rates, and spreads decide how much you actually keep.
A cap of 6% means a 20% index year still pays you 6%.
Fixed annuities are simpler and cheaper, but the trade-off is a modest rate that may not beat inflation over a long retirement.
Read the fee table before the brochure, and ask the seller for the total annual cost in dollars, not percentages.
None of this makes annuities automatically bad.
A low-cost, plain-vanilla contract can serve a real purpose for someone who needs lifetime income and will not touch the money for years.
The problem is that the industry's most expensive products are often the ones pushed hardest, because they pay the biggest commissions.
Final Thoughts
If an advisor will not put the all-in cost in writing, that silence is your answer.