Annuities are pitched as a safe way to turn savings into lifetime income, and for some retirees they genuinely help.
But the fees buried inside these products are often the reason the math stops working in your favor.
If you are sitting in a kitchen-table meeting with an agent who is sketching guaranteed income on a legal pad, the fee conversation usually comes last.
Start with the fee that never shows up on your statement.
When you buy a variable annuity, a slice of your return is skimmed off every year as a mortality and expense charge, or M&E.
That typically runs 1% to 1.25% of your account value.
It sounds small until you stack it against the average 0.15% to 0.5% expense ratio you would pay on a basic index fund inside a regular brokerage account or IRA.
Then come the riders, which are the extras agents love to add.
A guaranteed income rider can cost another 0.9% to 1.5% per year.
Layer the underlying mutual fund fees on top, and Morningstar research has found the total cost on some variable annuities tops 3% to 4% annually.
It comes out every single year, in good markets and bad.
Fixed indexed annuities play a different game.
There are usually no explicit annual fees, which is the pitch.
Instead, the insurer caps how much of the index gain you keep.
A cap of 6% means a year when the S&P 500 returns 22%, you collect 6% — and the rest stays with the insurance company.
That gap is an invisible fee, and it can dwarf anything printed on a prospectus.
If you change your mind in the first five to ten years, you may pay 7% or more to get your own money back, declining by a point a year.
Some contracts also hit you with a market value adjustment if you bail while interest rates have moved against the insurer.
Push your money in, and you may be locked in longer than you planned.
Before signing anything, ask the agent for the total annual cost in plain dollars, not percentages.
Then ask what you would pay for the same income using a low-cost index fund plus a Treasury ladder or a plain single premium immediate annuity, which is the stripped-down version with no riders and typically no ongoing fee.
If the commissioned product costs three times as much and the guarantee is the only thing you are really buying, at least you know what you are paying for it.
One more habit worth building: never buy an annuity inside an IRA without a hard look.
You already get tax deferral from the IRA, so you are paying annuity fees for a tax break you already have.
That combo is one of the most common ways ordinary savers quietly lose money.
The bottom line is that annuities are not scams, but the fee structure is built to be confusing on purpose.
Anyone shopping for guaranteed income in 2025 should demand the full cost in writing and walk away from any agent who will not put it there.
Final Thoughts
Your retirement does not need a mystery line item draining it every year.