Annuities have become a popular pitch for Americans worried about outliving their savings.
Sales of these insurance products climbed past $380 billion in 2023, according to industry data, as retirees looked for guaranteed income in a shaky market.
But the fees buried inside many annuities can quietly slice thousands of dollars off your nest egg over time.
Annuities come in two main flavors: fixed and variable.
Fixed annuities work more like a CD, paying a set rate.
Variable annuities tie your money to investments like mutual funds, and that's where the fee stacking gets ugly.
You're often paying several, all at once.
Start with mortality and expense risk charges.
This fee typically runs 1% to 1.25% of your account value every year, and it pays the insurer for guaranteeing your income.
Then add fund management fees, which can tack on another 0.5% to 1.5%.
Many contracts also charge an administrative fee, often $25 to $50 a year, plus a rider fee if you want a living benefit like guaranteed lifetime withdrawals.
Stack those together and a variable annuity can cost you 2% to 3% annually, sometimes more.
On a $200,000 account, that's $4,000 to $6,000 disappearing every single year.
Over a 20-year retirement, the drag can wipe out a huge chunk of what your money could have earned.
If you pull your money out early, usually within seven years, the insurer takes a cut.
That penalty often starts at 7% and steps down each year.
So if life changes and you need the cash, you're stuck choosing between a fee and a fee.
Indexed annuities aren't off the hook either.
They sound simple, but many come with caps, participation rates, and spreads that limit your upside.
Some carry surrender schedules lasting a decade.
Read the fine print, because the cap on your gains is a cost too, even if it's not labeled a fee.
Every annuity contract has one, and a good agent or advisor will hand it over without hesitation.
Second, compare the total annual cost against a simple alternative like a low-cost index fund or a Treasury ladder.
Third, check whether you actually need the insurance features, or whether you're paying for guarantees you'll never use.
The honest takeaway: annuities can make sense for some people who want a paycheck they can't outlive.
But the fees are real, they compound against you, and they're often glossed over in the sales pitch.
Final Thoughts
Know the number before you sign, or the number will find you later.