Annuities are pitched as a simple way to turn savings into steady retirement income.
What the brochures often skip is how many layers of fees sit between you and that money — and how much they can add up to over 20 or 30 years.
Here's the plain-English breakdown of what you're actually paying for. **Commissions come first.** When you buy an annuity through an agent or advisor, a commission is typically baked into the product, often 1% to 7% of what you invest, according to industry disclosures and FINRA.
It's deducted from your balance or built into the terms, which means you start with less working for you. **Then come the ongoing charges.** Variable annuities commonly stack a mortality and expense fee of roughly 1% to 1.5% a year, plus fund fees of 0.5% to 1%, plus optional riders like a guaranteed income benefit that can add another 0.5% to 1.5%.
Add those together and you can be paying 2% to 3.5% annually — every single year, whether the market is up or down. **Surrender charges lock you in.** If you want out early, most annuities hit you with a surrender fee that starts around 7% and steps down over 5 to 10 years.
It's designed to keep your money in place long enough for the insurer and the salesperson to get paid. **Indexed annuities hide the cost differently.** Fixed indexed annuities don't show a big annual fee line, but they use caps and participation rates that quietly limit your gains.
A 6% cap means when the index returns 12%, you get 6%.
That missing half is a cost, even if it never appears on a statement. **Run your own math.** Ask for the fee schedule in writing before you sign anything.
Then take your projected annual fees and multiply them by your balance.
On a $200,000 annuity at 2.5% a year, that's $5,000 gone annually — roughly $100,000 over two decades, before counting what that money could have earned if it stayed invested.
A plain fixed annuity or a low-cost income rider can make sense for someone who genuinely wants guaranteed lifetime payments and has maxed out other retirement options.
The problem is paying 3% a year for a product you don't understand, sold by someone who won't put the fee table in front of you.
If an agent gets vague when you ask about costs, that's your answer.
Final Thoughts
Get the numbers in writing, compare them to a simple index fund and a bond ladder, and walk away from anything you can't explain to a friend in one sentence.