Walk into any seminar promising "guaranteed retirement income," and you'll hear about safety, growth, and lifetime payouts.
What you likely won't hear is that some annuities quietly skim 1% to 3.5% off your balance every single year — fees that can devour a third of your returns over a few decades.
The people selling them often earn a commission on the sale, which gives them little incentive to walk you through the fine print.
Start with the fee that's easiest to miss: the mortality and expense charge.
It sounds administrative, but it typically runs 1% to 1.5% annually on variable annuities, paid to the insurer for bearing risk.
Layer on fund management fees inside the subaccounts, often another 0.5% to 1.5%, and you're already at 2% before anyone mentions the word "rider." Riders are where the real money quietly leaves.
That "guaranteed income benefit" you're paying extra for?
It can cost 0.9% to 1.5% per year on its own.
Add a death benefit rider and a long-term care rider, and a single product can stack four or five separate annual charges.
A 7% market year can feel like a 3% year once the dust settles.
Then there are surrender charges, which punish you for changing your mind.
Typical schedules start around 7% in year one and step down to zero over five to ten years.
Critics call it a trap for people who realize in year three that the product doesn't fit.
Meanwhile, many contracts also cap your upside — you get a slice of market gains, not the whole pie, while downside protection is the expensive part you're actually buying.
The insurance company and the agent, mostly.
Commissions on indexed and variable annuities commonly run 4% to 8% of your premium, paid upfront out of money you thought was invested for you.
That's not automatically a scandal — financial products cost money — but it means the person recommending it may be getting paid more for one option than another.
Ask for the fee table, in writing, before you sign anything.
Add up every percentage point across the base contract, subaccounts, and riders.
Then ask what a low-cost alternative would cost: a fee-only advisor, a simple index fund portfolio, or a plain single premium immediate annuity with no riders and no surrender schedule.
Those stripped-down versions often charge a fraction of what the loaded products do.
If a salesperson can't or won't show you a clear annual cost, that's your answer.
Nobody hands you a receipt for the money drained from a retirement account year after year.
You have to demand it yourself, and you have to do it before the paperwork is signed, not after the free dinner.
Our take: annuities aren't inherently evil, and some retirees genuinely benefit from guaranteed income they can't outlive.
But the fee layers on many products are built to be confusing on purpose, and the person across the table is usually paid to keep it that way.
Final Thoughts
Bring a calculator, bring a skeptic, and treat every "free" seminar as a sales pitch with a long tail.