Annuity Fees Explained: What You’re Really Paying

Do Annuities Have Fees?

It depends entirely on the type. Fixed and fixed indexed annuities typically have low or no annual fees. Variable annuities are notorious for high fees that can seriously erode returns.

Variable Annuity Fees (The Expensive Ones)

• Mortality & Expense (M&E) charge: 0.5%–1.5% annually — pays for the insurance wrapper
• Administrative fee: 0.1%–0.3% annually
• Sub-account (fund) fees: 0.5%–2% annually — similar to mutual fund expense ratios
• Rider fees: 0.5%–1.5% annually per rider
• Total: Often 2%–4% per year, all-in

At 3% in annual fees, a $300,000 annuity costs you $9,000/year. Over 20 years, that’s $180,000+ in fees (before compounding impact).

Fixed Annuity Fees

Fixed annuities typically have no annual fees. The insurance company makes its margin by crediting you a rate lower than what they earn on their bond portfolio. Simple and transparent.

Fixed Indexed Annuity Fees

Base FIAs often have no annual fees either. However, optional income riders typically cost 0.75%–1.25% per year, deducted from your account value.

Surrender Charges

Not technically a fee, but surrender charges apply if you withdraw more than allowed during the surrender period. Typical structure:

• Year 1: 7–9%
• Year 2: 6–8%
• …declining each year until year 7–10: 0%

Most annuities allow 10% free withdrawals annually without surrender charges.

How to Evaluate Fees

Always ask for the “all-in” cost including rider fees. Compare net credited rates (what you actually earn after fees) across products. A 6% crediting rate with 1.5% in rider fees nets 4.5% — make sure that still beats alternatives.