Roughly $385 billion flowed into them in 2023, a record, and sales stayed strong through 2024 as Americans hunted for yield and protection from market swings.
What many buyers miss is the fee layer cake baked into the contract.
It isn't billed separately — it's built into the product, and on some deferred annuities it runs 5% to 7% of what you put in.
On a $100,000 purchase, that's up to $7,000 that never gets a chance to grow for you.
Indexed and variable annuities, the most heavily pitched types, tend to carry the richest payouts to the agent or advisor who sold them.
Variable annuities layer a mortality and expense fee of roughly 0.9% to 1.5% a year, plus fund expenses that can add another 0.5% to 1% or more.
Optional riders — a guaranteed income benefit, a death benefit — tack on 0.5% to 1.5% each.
Stack enough of them and you're looking at 3% or more in annual costs before the market does anything.
Agree to withdraw too much too soon and you can pay 7% in year one, sliding down over five to ten years.
That structure exists to lock you in long enough for the insurer to recoup the upfront commission.
Many contracts also cap how much you can pull each year, often 10%, without triggering the penalty.
Indexed annuities are trickier because the cost isn't always a visible percentage.
Instead, insurers limit your upside through caps, participation rates, and spreads on the index you're tracking.
A cap of 6% on an index that returns 20% means the insurer keeps the difference.
That foregone gain is a fee in everything but name.
Fixed annuities and multi-year guaranteed annuities are the cleanest of the bunch.
They typically have no explicit annual fee, though surrender schedules still apply, and the rate you're quoted already reflects the insurer's costs.
Immediate annuities work similarly — the payout is what it is, and the pricing is baked in.
So how do you tell whether a deal is fair?
Ask for the fee disclosure page in writing and add every percentage together.
Compare the total against a low-cost alternative, like a Treasury ladder or an index fund charging 0.05%.
Then ask what the surrender schedule looks like and how long you'd need to hold the contract to come out ahead.
The honest answer is that annuities aren't automatically bad.
A single premium immediate annuity can function like a do-it-yourself pension, and for some retirees that certainty is worth real money.
The problem is when high-cost products get sold to people who wanted safety and ended up with complexity, lockups, and a decade of drag.
Our take: treat every annuity pitch as a math problem, not a trust exercise.
Get the fee totals in writing, compare them to plain-vanilla alternatives, and walk away if the salesperson can't or won't put the numbers on paper.
Final Thoughts
The difference between a 0.5% and a 3% annual drag compounds into tens of thousands of dollars over a retirement — money that either funds your life or your broker's.