Annuities are sold as a safe harbor for retirement, but the fees hiding inside them are anything but calm.
Before you sign a contract, it helps to know exactly who gets paid, how much, and when.
The first cost is often invisible: the commission.
A salesperson who sells you an annuity can earn anywhere from 1% to 7% of your premium upfront, paid by the insurance company but baked into what you're offered.
That money isn't deducted from your account as a line item, which is precisely why it's easy to miss when you're staring at a glossy brochure.
Variable annuities carry mortality and expense fees, typically 1% to 1.5% a year, plus fund management fees inside the subaccounts that can add another 0.5% to 2%.
Stack on riders like a guaranteed income benefit and you can easily cross 3% annually.
On a $100,000 contract, that's $3,000 gone every year, whether the market rises or falls.
Fixed indexed annuities play a different game.
There's no annual fee in the traditional sense, but the caps and participation rates quietly limit how much of the index's gain you keep.
If the S&P 500 returns 12% and your contract caps you at 5%, the difference isn't a fee on paper, yet it lands in the same place: the insurer's pocket.
If you pull money out in the first five to ten years, you can pay 7% in year one, sliding down to 1% or so by the end.
Many contracts also tack on a market value adjustment that can shrink your withdrawal further when interest rates have moved.
Die too early and some contracts pay your heirs only the account value minus any outstanding charges, wiping out the extra you paid for a death benefit rider.
Read the fine print on what happens at death before assuming your family is covered.
Ask for the full fee table in writing and compare the total annual cost against a plain index fund charging 0.05%.
Ask the agent how much they personally earn on the sale.
If they dodge the question, that's your answer.
Annuities can make sense for someone who truly wants a guaranteed paycheck for life and has maxed out other retirement options.
For most people, though, the math only works if the guarantees are worth years of drag.
Final Thoughts
Run the numbers on a spreadsheet before you run them past a salesperson.