Salespeople love to pitch annuities as a simple way to lock in retirement income.
What they rarely lead with is how many layers of fees can sit between your money and your payout.
Before you sign anything, it helps to know exactly who gets paid, and how much.
When you buy an annuity through an agent or advisor, that person typically earns a one-time commission of 1% to 7% of what you invest, depending on the product.
On a $200,000 purchase, that can mean thousands of dollars leaving your account on day one.
You don't write a check for it, but it shows up in lower account values and longer surrender periods.
Many variable and indexed annuities carry mortality and expense fees, administrative fees, and a charge for any income rider you add.
Those can add up to 1% to 3% or more every year, according to fee disclosures consumer advocates have flagged for years.
Stack enough riders and sub-accounts, and you can be paying more than you would for a plain index fund.
The surrender period is the part that traps people.
If you want out early, usually within five to ten years, you owe a surrender charge that starts high and steps down over time.
Miss the window and some contracts auto-renew, resetting the clock.
That's not a scam by itself, but it is a commitment most buyers underestimate.
The insurance company and the person who sold you the policy.
That doesn't make every annuity a bad deal.
Immediate annuities, where you hand over a lump sum for guaranteed lifetime payments, can be genuinely useful for people who want predictable income and have maxed out other options.
The problem is when high-fee, complex products get sold to people who don't need them.
If you're shopping, ask for the fee table in writing before you commit.
Request the total annual cost in dollars, not just percentages, and ask what you'd get back if you changed your mind in year two versus year seven.
Compare that against a low-cost alternative.
A fee-only fiduciary advisor, paid by the hour rather than commission, can run the numbers for you.
One more thing worth knowing: some states and the SEC have been scrutinizing annuity sales practices, especially to older buyers.
Newer rules push sellers to act in your best interest, but enforcement varies.
Your best protection is still reading the contract and asking blunt questions.
The bottom line is that fees are the silent partner in most annuity contracts, and they compound against you just as returns compound for you.
A product isn't automatically bad because it pays a commission, but you deserve to see the full price tag before you buy.
Final Thoughts
If a seller dodges your fee questions, that alone tells you plenty.