Annuities are sold as a way to turn savings into a guaranteed paycheck for life.
What the brochures often bury is the fee stack that comes attached.
Those charges don't show up as one line item — they're spread across the contract, and they compound against you for decades.
Start with the mortality and expense charge, usually 1% to 1.5% of your account value every year.
That's the insurer's cut for managing the pool of money and paying out lifetime income.
On a $200,000 balance, that's $2,000 to $3,000 gone before your money has a chance to grow.
Each one carries its own annual fee, often 0.5% to 1.5% apiece.
Stack two or three and you can easily cross 3% a year in total costs — which is why so many variable annuities underperform the plain index funds sitting inside them.
If you change your mind and pull money out early, you can pay 7% in year one, sliding down to 1% or 0% by year seven or so.
It keeps you from leaving long enough for the fees to pile up.
Variable annuities hold mutual-fund-like subaccounts, and those carry their own expense ratios.
Add them to the insurance charges and a "safe" retirement product can quietly cost you 3% to 4% a year.
Over 20 years, that's not a rounding error — it's potentially hundreds of thousands of dollars in lost growth.
Fixed and immediate annuities are simpler.
You hand over a lump sum, the insurer pays you a set amount for life, and the fees are baked into a lower payout rather than billed separately.
That can still be a fair deal for the right person — someone who wants a pension-like check and won't need the cash back.
The problem is when a complex product is sold to someone who mostly wanted safety.
Commissions on some annuities run 5% to 7%, paid upfront to the agent.
That's a strong incentive to pitch the product hard, especially to retirees with a rollover IRA sitting in cash.
If you're considering one, ask for the total annual cost in dollars, not percentages.
Ask what the surrender schedule looks like and how many years it runs.
Ask whether the same goal — steady income — could be met with a simple Treasury ladder or a low-cost immediate annuity.
A fee that looks small on a page is anything but small over 30 years.
Our take: annuities aren't automatically bad, but the fee-heavy versions sold with a hard pitch rarely deserve the space they take up in a retirement account.
Final Thoughts
Get the full cost in writing before you sign, and if a salesperson dodges that question, that's your answer.