Annuities have a reputation problem, and a lot of it comes down to fees.
If you've ever sat through a sales pitch for one, you probably heard about guaranteed income and tax deferral.
What you may not have heard is the full list of charges that come out of your account every year.
Start with the mortality and expense charge.
This is the fee that pays the insurance company for the guarantees it's making you, and it typically runs somewhere between 1% and 1.5% of your account value annually.
On a $200,000 balance, that's $2,000 to $3,000 leaving your account every year, whether the market is up or down.
If you add a guaranteed income benefit or a death benefit, expect to pay extra, often 0.5% to 1.5% per year on top of the base fee.
The tricky part is that many of these riders charge their fee based on your highest account value, not the current one, so a bad market year can still trigger a full-price charge.
Administrative and fund fees pile on from there.
Most variable annuities put your money in mutual-fund-like subaccounts that carry their own expense ratios, and those can add another 0.5% to 2%.
Add it all up and a typical variable annuity can cost 2% to 4% a year.
Compare that to a plain index fund at 0.03% to 0.10% and the gap is hard to ignore.
There can also be surrender charges if you pull money out early.
These usually start around 7% in year one and step down over five to ten years, which is why your money can feel locked up long after you signed.
Fixed annuities are simpler and usually cheaper, but they may credit a lower rate than you expected after the initial teaser period ends.
So why does any of this matter right now?
Because a 3% annual drag can quietly eat a huge slice of your retirement.
Over 20 years, that's roughly half your potential growth gone to fees in some cases.
And unlike a one-time commission, these charges repeat every single year.
Before you sign anything, ask for the fee table in writing.
A legitimate agent will hand it over without hesitation.
Get the total annual cost as a single percentage number, ask whether the fee is charged on the account value or a higher "benefit base," and compare it against simply buying a low-cost index fund and a term life policy separately.
Sometimes the annuity still makes sense for someone who wants a guaranteed paycheck for life and won't touch the money for decades.
Our take: annuities aren't automatically bad, but the fee stack is where most of the value quietly disappears.
If a salesperson can't explain every charge in plain numbers on one page, that's your answer.
Final Thoughts
Ask, compare, and don't let a "guarantee" talk you out of doing the math.