With interest rates still elevated and stock market swings making plenty of Americans nervous, sales of these insurance-style retirement products jumped to record levels in recent years, according to industry tracker Limra.
But the pitch for guaranteed income often glosses over a less exciting number: the fees baked into the fine print.
Those costs can run anywhere from 0.3% to more than 3% of your account value every year, depending on the product.
On a $200,000 annuity, that's a potential $6,000 or more quietly leaving your balance annually, before you ever see a payout.
Commissions, often 4% to 8% on some products, are paid to the agent or advisor who sold you the contract.
You don't write a check for it, but it's typically built into your balance from day one, which is why many annuities start out worth less than what you put in.
Mortality and expense charges, usually 0.5% to 1.5%, cover the insurer's costs and profit.
Administrative fees add another 0.1% to 0.3%.
Investment management fees inside variable annuities can push total costs past 2% or 3% once riders are layered on.
Riders are where things get expensive fast.
Want a guaranteed lifetime income benefit?
That's often an extra 0.5% to 1.5% a year.
Add a long-term care or death benefit rider, and you can stack fees to levels that make even pricey mutual funds look cheap.
The math matters because of compounding in reverse.
A 2% annual fee doesn't just cost you 2%.
Over 20 years, it can shave 30% or more off what your money could have grown to in a low-cost index fund, according to widely cited fee-impact research.
That's the real trade-off: you're swapping potential growth for a guarantee, and the insurer is charging you for it.
Fixed annuities are simpler, usually with lower explicit fees folded into a lower credited rate.
Variable and indexed annuities are where the fee stacks get tall—and where the sales pitch tends to be most enthusiastic.
Before signing anything, ask for the contract's fee table in writing.
Compare the total annual cost to a simple benchmark, like a low-cost S&P 500 index fund charging under 0.05%.
And check whether you'll face surrender charges—often 7% in year one, sliding down over a decade—if you change your mind.
For some retirees, the peace of mind from guaranteed income is worth the price.
But that price should be a conscious choice, not a surprise buried on page 40.
Our take: treat every annuity fee like a subscription you're signing up for—forever.
If an advisor dodges the total cost question or waves off your request for the fee table, that's your cue to walk.
Final Thoughts
The best deal in retirement planning is often the one with the fewest hidden charges.