Annuities are sold as a way to turn savings into a guaranteed paycheck for life.
What the brochures tend to bury is the fee stack layered on top, and how much of your money never makes it into the part that grows.
The first cost is often the most expensive.
Many advisors earn a 5% to 7% commission on a variable or indexed annuity, paid by the insurer out of your deposit.
On a $100,000 rollover, that can mean $5,000 to $7,000 leaves the table before a single dollar is invested for you.
Variable annuities commonly run 1.25% to 2.5% per year in insurance and administrative fees, before you pay anything for the underlying mutual funds.
Add a living-benefit or income rider and you can tack on another 0.5% to 1.5% annually.
Instead of a stated fee, they cap your upside.
If the market index gains 12% and your cap is 6%, the insurer keeps the difference.
Point-to-point and participation-rate formulas can shrink that credited return further, and those rules sit deep in a 100-plus-page contract.
Walk away in year one or two and you may forfeit 7% to 10% of your account value.
The schedule usually steps down about one percentage point a year over seven to ten years.
That lock-in is why so many buyers feel stuck years after the sales pitch.
The math matters because fees compound against you.
A 2.5% annual drag on a $200,000 annuity costs roughly $5,000 in year one, and more as the balance grows.
Over 15 years, that gap can erase tens of thousands of dollars you would have earned in a low-cost index fund.
None of this means every annuity is a bad deal.
A plain immediate annuity, often called a single premium immediate annuity, can be simple and transparent, with no surrender schedule and no rider fees.
The trouble clusters around complex products sold with a commission incentive and a long lock-up.
If you already own one, dig out the prospectus and the annual statement.
Look for the mortality and expense charge, the administrative fee, the fund expenses, and any rider cost.
That single number tells you more about the product than any illustration the agent showed you.
Before signing anything, ask three questions in writing: what is the total annual cost, what is the commission, and what is the surrender schedule year by year.
Our take: annuities can serve a real purpose for people who want guaranteed income and will hold for decades, but the fee load on commission-heavy products is the silent return killer.
Buy the simplest contract that does the job, or skip it and keep your costs low.
Final Thoughts
Your future self keeps whatever the middleman does not.