Sales pitches for annuities tend to lead with guarantees, lifetime income, and peace of mind.
What they rarely lead with is the fee schedule, which can run from under 1% to north of 3% every single year.
On a $300,000 contract, that's the difference between paying roughly $2,000 annually and handing over more than $9,000 — before you see a dime of growth.
The fee problem is that annuities often stack charges instead of bundling them.
There's the mortality and expense risk charge, which compensates the insurer for guaranteeing payments.
Then come the riders — the optional add-ons like guaranteed lifetime withdrawal benefits that salespeople emphasize because they sound like the whole point.
Each rider can carry its own annual cost, and they add up fast.
Here's the part that deserves more attention: many variable annuities bury a layer of fund expenses inside the contract.
You're not just paying the insurance wrapper; you're also paying the underlying mutual fund-style investments, which can tack on another 0.5% to 1% or more.
Stack the wrapper, the riders, and the funds, and a "modest" 1.25% fee can quietly balloon past 3%.
That drag compounds against you for decades.
The insurance company, obviously, and the agent or advisor who sells it, because commissions on annuities can run 4% to 7% of your premium upfront.
That commission isn't billed to you directly — it's baked into the product's economics, which is precisely why the fee disclosure can feel slippery.
Ask a seller what they earn on the sale and watch how quickly the conversation changes.
Surrender charges deserve their own warning label.
If you want out during the early years, typically the first five to seven, you may pay a percentage of your account value to leave.
That penalty can start around 7% and step down annually.
Combined with high ongoing fees, it can trap people in a product they no longer want, which is a feature for the issuer, not for you.
None of this means every annuity is a bad deal.
Immediate annuities, where you hand over a lump sum for a set monthly check, can be simple and transparent, with costs baked into the payout rather than billed separately.
Some low-cost variable and fixed-indexed products exist too.
The catch is that the cheap ones are rarely the ones being pushed hardest, because there's less money in them for the person doing the pushing.
If you're considering one, ask for the fee table in writing and read the riders line by line.
Compare the total annual cost against a plain index fund portfolio, and ask yourself whether the guarantee is worth the gap.
Consider whether you'd actually use the rider you're paying for, or whether it's just comforting to own.
Our take: annuities aren't inherently scams, but the fee structure rewards complexity and punishes anyone who doesn't read the fine print.
Treat every guarantee as something you're paying for, because you are.
Final Thoughts
If a salesperson can't explain the total annual cost in plain numbers, that's your answer.