With interest rates still elevated and stock market swings making plenty of Americans nervous, sales of these insurance products hit record levels in recent years.
But tucked inside many of those contracts is a fee structure that can quietly shave thousands of dollars off your retirement nest egg over time.
Here's the problem: annuity fees rarely show up as one clean line item.
There's a mortality and expense charge, often 1% to 1.5% of your account value each year.
Add administrative fees, fund management fees inside the subaccounts, and optional riders for things like guaranteed income or death benefits, and the total can climb past 3% annually.
That matters because fees compound just like returns do, except in reverse.
A 2.5% annual drag on a $200,000 annuity costs roughly $5,000 in year one alone.
Over 20 years, the cumulative hit can run into six figures, money that never gets a chance to grow.
Most buyers never see a single consolidated statement showing the full tally.
Fixed indexed annuities often skip explicit annual charges but cap your upside with participation rates and spreads that can be harder to spot.
Variable annuities are the fee-heavy cousins, stacking insurance charges on top of mutual fund expenses.
Immediate annuities, where you hand over a lump sum for lifetime payments, bury costs in the payout rate itself.
Sign up and you may face a 7% penalty for cashing out in year one, sliding down to zero over seven to ten years.
That lock-in is a big reason so many people stay put even after they realize the fees are steep.
Ask for the fee table in writing and add up every layer yourself.
Compare the total cost against a plain low-cost index fund or a simple term insurance plus investing strategy.
If a salesperson resists putting numbers on paper, that's your answer.
One more thing: many annuities are sold by commission, sometimes 5% to 7% of your deposit.
The person pitching it may not be the person looking out for your best interest.
Our take: annuities aren't automatically bad.
A plain immediate annuity can make sense for someone who truly wants guaranteed lifetime income and values that certainty.
But if you're buying one for growth, understand that the fees are the product's quietest feature and its most expensive one.
Final Thoughts
Run the numbers before you sign, not after.