Sales pitches for annuities tend to mention guaranteed income and peace of mind.
They rarely lead with the fees, and that omission deserves a closer look.
Annuities are insurance products, not savings accounts.
That distinction matters because the insurer has to cover its costs, its agents, and its profit, and those expenses come out of your money before it ever reaches your account.
The Insurance Information Institute notes that fees vary widely by product type, which means two people with identical deposits can end up with very different outcomes based on paperwork alone.
The most visible charge is the mortality and expense risk fee, typically quoted as a percentage of your account value each year.
In a variable annuity, that annual cost often lands somewhere between 1% and 1.5%, and it stacks on top of the fund fees inside the annuity.
Add another 0.5% to 1% for the underlying investments, and you can be looking at total annual costs above 2% before the insurer does anything special for you.
An income rider or death benefit rider sounds like a bonus, but each one carries its own annual charge, sometimes 0.5% to 1.5% a piece.
A product advertised as a simple guaranteed-income solution can quietly accumulate four or five separate fees, none of which appear on the brochure's front page.
If you want out early, most contracts impose a penalty that starts around 7% and declines over five to ten years.
Combined with high annual costs, that structure can make it expensive to leave even after you realize the deal isn't working for you.
State insurance regulators have flagged these layered charges repeatedly, yet disclosure documents often bury them in dense appendices.
The agent collecting a commission, which on some annuity sales runs 5% to 7% of your deposit.
You benefit only if the product's specific guarantees are worth more to you than the drag of those costs, and that calculation is personal.
If you're considering an annuity, ask for the total annual cost in dollars, not percentages, on your actual deposit amount.
Request the surrender schedule in writing.
Compare the same money against a low-cost index fund and a simple Treasury ladder, then decide whether the insurance wrapper earns its keep.
Fee-only financial planners who don't sell annuities can review a contract for a flat fee, and that second opinion is often the cheapest money you'll spend all year.
Annuities aren't inherently bad, and some retirees genuinely value the predictability.
But the industry's habit of leading with guarantees and whispering about costs puts the burden on you to do the math.
Final Thoughts
Ask blunt questions, get the numbers in writing, and remember that anyone earning a commission on the sale isn't a neutral source.