Annuities have a reputation problem that has nothing to do with the products themselves and everything to do with the paperwork nobody reads.
Insurance companies sold roughly $385 billion worth of annuities in 2023, according to LIMRA, yet most buyers still can't explain what they're paying in fees.
That gap between what you own and what you understand is where real money disappears.
The first fee most people encounter is the commission, and it's baked into the product before you ever see a statement.
A deferred annuity sold through an agent can carry a commission between 1% and 7%, paid upfront out of your premium.
On a $100,000 deposit, that's up to $7,000 that never gets a chance to grow.
You don't write a check for it, which is exactly why it's easy to miss.
Then comes the surrender charge, a fee for changing your mind.
Typical schedules start around 7% in year one and step down annually until they hit zero, often after seven to ten years.
Withdraw more than the allowed 10% in a given year during that window and the penalty applies to the excess.
Retirement savings are supposed to be flexible; this structure locks them in place.
Variable annuities stack on a second layer.
Mortality and expense charges usually run 1.0% to 1.5% annually.
Add fund management fees of 0.5% to 2%, plus riders for guaranteed income or death benefits that can tack on another 0.5% to 1.5% each.
Suddenly you're paying 3% or more per year, every year, whether the market is up or down.
On a $200,000 account, that's roughly $6,000 annually in drag.
Fixed indexed annuities hide their costs differently.
There's no explicit expense ratio, but the caps and participation rates limit your upside.
If the index gains 12% and your cap is 6%, the insurer keeps the difference.
That spread is the fee, and it's invisible on any disclosure document.
The good news is that the fee landscape is shifting.
Several major insurers have launched no-commission, fee-based annuities designed for fiduciary accounts, charging a flat 0.10% to 1.25% annually instead of embedded commissions and surrender schedules.
These products are increasingly available through registered investment advisors, though they remain a small slice of total annuity sales.
Before signing anything, ask three questions in writing: What is the total annual cost including all riders?
What is the surrender charge schedule year by year?
And what is the commission or compensation the agent receives?
If those answers don't come back clearly and quickly, that silence is its own kind of answer.
Annuities can serve a legitimate purpose for Americans who want guaranteed lifetime income and have already maxed out other retirement options.
But the difference between a fair annuity and an expensive one often comes down to a single percentage point per year, compounded over decades.
Final Thoughts
Read the fee table before you read the sales brochure, and don't let anyone rush a decision that will follow you for the next thirty years.