Annuities are pitched as simple: hand over a lump sum, get a check for life.
What the brochure rarely leads with is the layered fee structure baked into the product — charges that can quietly skim 1% to 3% or more off your balance every year, whether the market cooperates or not.
Start with the most misunderstood one: the surrender charge.
It's an exit toll, often 7% in year one, sliding down to zero over seven to ten years.
Then there's the mortality and expense charge, typically 0.5% to 1.25% annually on variable annuities.
You're essentially paying the insurer for the guarantee that your heirs won't outlive the company's math.
That's a real promise — just understand it isn't free.
A living-benefit rider promising guaranteed income can tack on another 0.5% to 1.5% per year.
Stack that on top of fund expense ratios (0.3% to 1%+), an administration fee, and a contract fee, and a variable annuity can bleed 2.5% or more annually.
On a $300,000 balance, that's over $7,500 a year — before you earn a dime.
Fixed indexed annuities avoid the fund layer but replace it with caps and participation rates.
The insurer keeps the difference between what the index returns and what it credits you.
It's not technically a "fee," but it functions like one, and it's often invisible on your statement.
Here's the part that should raise eyebrows.
Many of these products pay a commission of 5% to 7% upfront to the person who sold it to you.
They're a salesperson, and the fee structure is designed around that reality.
Some buyers — especially those who want a guaranteed income floor and won't touch the money for decades — may find them reasonable.
The problem is that the sales pitch almost never includes a clean, plain-English breakdown of what you're actually paying.
If you already own one, dig out the prospectus and find the fee table.
Then ask what you'd need to earn just to break even.
The answer is often higher than you'd expect.
If you're being pitched one, ask three questions: What's the total annual cost?
And how much does the person selling this get paid?
If they dodge any of them, that tells you plenty.
Our take: the annuity industry's biggest product isn't income — it's opacity.
Fees buried in prospectuses and explained in jargon are fees most buyers never consciously agree to.
Final Thoughts
Before you sign, do the math yourself, or pay a fee-only advisor to do it for you.