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% a year to well past 3% depending on the product and the riders attached.
On a $200,000 contract, that's a gap of roughly $2,000 to $6,000 leaving your account annually, before a single dollar of growth is credited.
Worse, those fees often hide in plain sight.
Variable annuities bury costs inside subaccount expense ratios, mortality and expense charges, and administrative fees.
Add a living-benefit rider, and the total can climb further.
Nothing on the statement says "this is what the salesman got paid" — but you paid it anyway, typically through surrender charges that start high and step down over seven to ten years.
The commission question is the elephant in the room.
Insurance agents selling variable or indexed annuities can earn 5% to 8% upfront on your money, sometimes more.
That's not automatically bad, but it tells you who benefits from the sale.
A fiduciary adviser charging a flat 1% has a very different incentive than an agent earning a one-time commission on the same $200,000.
Indexed annuities deserve their own caution.
They promise market-linked gains with a floor of zero, but the caps and participation rates are set by the insurer — and can be changed later.
Researchers who study these products have found that investors often capture only a fraction of the index's upside while paying for complexity they can't easily price.
The insurer isn't being generous; it's selling you options with a markup.
None of this means every annuity is a rip-off.
Immediate annuities, which convert a lump sum into lifetime payments, are relatively simple and can be genuinely useful for retirees who want a paycheck they can't outlive.
Fixed annuities paying a set rate can make sense for conservative savers.
The problem is the bells and whistles layered on top, each with its own fee.
If you're considering one, ask for the total annual cost in writing, including rider charges and fund expenses.
Ask how the surrender schedule works and what happens if you need the money in year three.
Compare that against simply holding low-cost index funds and withdrawing a set percentage each year.
Run the numbers side by side, not just the illustration the agent hands you.
Also read the fine print on living-benefit riders.
Some require you to annuitize — lock in — to use the guarantee, and the income base is often not the same as your account value.
If the market drops, you may still be charged fees on the higher guaranteed base, which quietly erodes what's actually yours.
Bottom line: annuities aren't inherently evil, but the fee layers are where the money disappears.
The person selling you one is paid from your principal, so treat the pitch like any other sales call — get the full cost in writing and compare it to the boring alternative.
Final Thoughts
If the numbers only work in the illustration, they probably don't work in your checkbook.