The Truth About Annuity Fees (and Why Nobody Tells You Until You’ve Signed)

The Truth About Annuity Fees (and Why Nobody Tells You Until You’ve Signed)

So you’re thinking about buying an annuity. Great! Predictable income, peace of mind, maybe even a legacy for your family. But before you sign anything, let’s talk about the elephant in the room: fees.

Most annuity buyers don’t realize how much they’ll pay until after the paperwork is signed — and by then, it’s too late. Here’s what you need to know about the real costs hiding inside annuities and how to protect yourself. Here's The Truth About Annuity Fees...

1. The “Invisible” Annual Fees

Unlike your 401(k), where you can often see fund expense ratios right in your statement, annuity fees can feel like a magician’s trick — they’re there, but not always obvious.

• Mortality and Expense (M&E) fees: These cover the insurance part of your annuity. They typically run 0.5% to 1.5% per year. That means on a $100,000 annuity, you could lose $500–$1,500 annually before you even start.

• Administrative fees: Usually small (like $30–$50 a year), but hey, that’s dinner out with your spouse.

• Investment management fees: If you choose subaccounts inside a variable annuity, expect another 0.5% to 2% annually, depending on the funds.

Reality check: If your annuity racks up 2–3% in fees annually, your money has to grow that much just to break even.

2. Surrender Charges (The “Gotcha” Fee)

Most annuities lock your money in for years — sometimes a decade or more. If you need it earlier? Enter surrender charges.

• These penalties usually start around 7–10% of your withdrawal if you cash out too soon, and they gradually shrink over time.

• Example: Put in $50,000, realize in Year 2 that you need cash for an emergency, and take it out. You could lose $3,500–$5,000 in surrender fees — ouch.

401(k)s and IRAs have early withdrawal penalties too (10% before age 59½), but at least those rules are clear and consistent. With annuities, every contract is different, which makes it easy for buyers to get caught off guard.

3. Rider Fees (The “Extras” They Don’t Mention Until Later)

Riders are optional benefits you tack on to your annuity — guaranteed income for life, death benefits, enhanced withdrawals, etc. Sounds great, right? But every add-on costs more.

• Most riders cost 0.25% to 1% annually.

• Stack two or three, and you’re paying hundreds (or thousands) more per year.

For some people, riders are worth it. But too often, they’re oversold without being explained.

4. Opportunity Cost (The Fee Nobody Calculates)

Even if you’re okay with the explicit fees, there’s a hidden cost: lost growth potential.

• If your annuity caps gains (say 5% annually) while the market averages 8–10%, you’re losing that extra upside year after year.

• Over 20 years, that difference could mean tens of thousands less in retirement income.

Annuities aren’t “bad” — they just trade growth potential for security. The problem is when no one tells you that trade-off exists.

How to Protect Yourself

Before buying an annuity, ask:

• “What are all the annual fees?” (Have them list M&E, admin, fund fees, riders.)

• “What’s the surrender charge schedule?” (Get it in writing.)

• “How much will these fees cost me in 10 years?” (Don’t settle for vague answers.)

• “What happens if the market outperforms my contract?” (This reveals the opportunity cost.)

The Bottom Line and The Truth About Annuity Fees

Annuities can be useful tools — especially if you want guaranteed lifetime income. But they’re not free. The key is going in with your eyes wide open, not getting surprised later.

That’s where I come in. My job isn’t to sell you “the one annuity I have in a drawer.” I work with multiple carriers, explain the real numbers, and help you decide if an annuity even makes sense for you.

👉 Get a Quote from Nicole Irwin — no pressure, just straight answers about your options, including all the fees nobody else seems to talk about.