Annuities have a reputation problem for a reason, and it usually comes down to one word: fees.
An investor who signs a contract expecting steady income can watch a meaningful slice of that money disappear every year through charges that were never explained in plain English.
The result is a gap between what a retiree thinks they own and what actually lands in their account.
The first charge to understand is the mortality and expense risk fee, often called M&E.
This is a yearly percentage skimmed from your contract's value that typically runs between 1% and 1.5%.
It pays the insurer for guaranteeing your income, but it quietly compounds against you over decades.
On a $200,000 contract, that's $2,000 to $3,000 gone in year one alone.
Then come the riders, which are optional add-ons that rarely feel optional once a salesperson frames them as essential.
A guaranteed lifetime withdrawal benefit might cost another 0.5% to 1.5% annually.
Stack three or four riders and your total annual drag can sail past 3%, which is a brutal headwind in a market returning 6% or 7%.
Surrender charges are the trap that keeps people locked in.
If you try to exit in the first several years, you can lose 7% of your account value, a penalty that usually steps down gradually over a seven-year schedule.
That structure means the highest fees and the highest exit costs hit you at the exact moment you're most likely to regret the purchase.
Indexed and variable annuities add another layer through caps, participation rates, and spreads.
Your contract might promise to track an index, but a 6% cap means you keep none of the upside above that line.
Meanwhile, the fees still get deducted whether the index rises or falls.
Investors often discover this asymmetry only after a flat year produces a negative net return.
The practical takeaway is to demand a full fee breakdown before signing anything.
Ask for the total annual cost in dollars, not percentages, and request the surrender schedule in writing.
Low-cost options do exist, including no-load annuities sold directly and plain single premium immediate annuities with minimal embedded charges.
If you already own one, pull the prospectus and add up every recurring fee.
Sometimes a 1035 exchange to a cheaper contract makes sense, though you need to weigh new surrender periods against the savings.
In other cases, the math says eat the penalty and move on.
Our take: annuities can serve a legitimate purpose for retirees who want guaranteed income and will actually hold the contract for life.
But the fee stack is where most of the value quietly leaks out, and anyone selling one should be able to justify every basis point in plain language.
Final Thoughts
If they can't, that silence is your answer.