Annuities are pitched as a simple way to turn savings into a lifetime paycheck, but the fees behind them are rarely simple.
Depending on the contract, you could be handing over 1% to 3.5% of your balance every year, and some charges only show up if you read the fine print buried in a 60-page prospectus.
Over a 20-year retirement, that can quietly drain tens of thousands of dollars that would have otherwise stayed in your account.
The problem is that annuities wrap several fees together, so no single number jumps out.
There's a mortality and expense charge, an administrative fee, and often an investment management fee on top.
If you add a living benefit rider, that can cost another 0.5% to 1.5% annually.
Stack them and a variable annuity can run well past 2% a year before you ever see a statement line explaining each piece.
Then come the charges that aren't annual at all.
Surrender fees can hit 7% if you cash out in the first year, sliding down over a seven-year schedule.
Some contracts tack on a "market value adjustment" that reduces your payout when interest rates move against you.
And a few annuities carry a premium tax or transfer fee that shows up only at the moment you move money.
Because a wave of Americans who bought annuities in the 2010s are hitting the end of their surrender periods, and many are shocked at the gap between what they were promised and what the account is worth.
With interest rates still elevated, the difference between a 1% fee and a 2.5% fee on a $200,000 balance is roughly $3,000 a year — real money that could cover groceries, utilities, or a car payment.
The good news is that fees are negotiable in some cases and avoidable in others.
Fixed immediate annuities, where you hand over a lump sum for a set monthly check, tend to have the lowest internal costs because there's no investment menu to manage.
Indexed annuities often cap your upside but carry fewer explicit charges.
And a fee-only fiduciary advisor can show you a side-by-side comparison of what you're paying versus a low-cost alternative.
Before you sign anything, ask for the "fee table" page and a free-look period in writing.
Ask what the surrender schedule looks like year by year, and whether any rider can be dropped later without penalty.
If a salesperson can't explain every charge in plain English, that's your cue to walk.
One more move: check your existing contract.
Many people don't realize their annuity has a built-in annual increase in fees, or that a "bonus" credit at signing comes with a higher long-term charge.
A quick call to the insurer's customer service line can get you a written fee summary at no cost.
Annuities aren't inherently bad — a guaranteed income stream has real value for people who want certainty.
If you don't know what you're paying, you're not really choosing an annuity; you're accepting whatever the fine print decides.
Final Thoughts
Read the fee table first, and let the math make the call.