Calculate the Impact of Fees on Your Retirement Income
The biggest myth in retirement planning is that all annuities are “expensive” or filled with hidden costs. The reality is simpler: Every fee in an annuity contract is tied to a specific benefit, such as principal protection, death benefit guarantees, or a lifetime check you can’t outlive. By understanding which fees are required and which are optional, you can strip away unnecessary costs and maximize your actual take-home return.
The reality is that annuities have clear, disclosed fees—there’s no more fine print or hidden costs. Every dollar in an annuity contract is accounted for, just like the 100 pennies in a dollar analogy used by actuaries when designing these products. The only question is: Which type of annuity is right for you based on costs and benefits?
Annuity Fees Ranked: From Most Expensive to Least Expensive
Pro Tip: While fees are a critical factor, you must also look at the potential return. View current annuity rates across all product types to see how the ‘no-fee’ options stack up against indexed and variable products.
1. Variable Annuities – The Most Expensive Option
- Fees: 2-4% annually
- Breakdown:
- Mortality & Expense (M&E) fees: 1-1.5%
- Investment management fees: 0.5-2%
- Administrative fees: $25-$50 annually
- Rider fees (for income or enhanced death benefits): 0.5-1.5%
- Who It’s For: Investors who want stock market exposure but need a guaranteed income option.
- Who Should Avoid It: Those looking for lower-cost retirement income.
Deep Dive: These fees can add up faster than you think. Check out our guide on how the variable annuity fees breakdown to see why they are often the most expensive option on the market.
2. Fixed Index Annuities – Low to Moderate Fees
- Fees: 0-1.5% (only if riders are added)
- Breakdown:
- No annual fees unless you choose optional riders
- Potential spread or cap fees on indexed gains
- Who It’s For: Investors seeking market-linked growth with downside protection.
- Who Should Avoid It: Those who need complete market liquidity.
3. Fixed Annuities – No Fees, Just Guaranteed Growth
- Fees: Typically none
- Breakdown:
- No annual fees
- The insurance company profits from the difference between the rate they offer and what they earn on investments
- Who It’s For: People who want a safe, predictable return.
- Who Should Avoid It: Those seeking stock market-like returns.
- Next Step: Because they carry zero annual fees, fixed annuities are often the most cost-effective way to grow your savings. You can compare current fixed annuity rates to see the top-rated 3, 5, and 10-year terms available today.
4. Immediate and Deferred Income Annuities – No Fees, But No Liquidity
- Fees: None, but once you annuitize, you cannot withdraw lump sums.
- Breakdown:
- No annual fees
- Payments based on current interest rates and life expectancy
- Who It’s For: Retirees looking for the highest guaranteed lifetime income.
- Who Should Avoid It: Those who want access to their principal.
Quick Compare: Fee-Based vs. No-Fee Choices
- VAs (highest cost) → Powerful investing + riders; pay for flexibility and guarantees.
- Cheaper swap: FIA or MYGA.
- Give up: mutual-fund-style investing; possibly some flexibility.
- FIAs (low to moderate) → Downside protection and index-linked growth; riders only if you want income guarantees.
- Cheaper swap: MYGA.
- Give up: index-linked potential and GLWB.
- MYGAs/Fixed (no annual fees) → Simple, guaranteed rate; lowest friction.
- Give up: market/index upside and rider-based guarantees.
- SPIA/DIA (no annual fees) → Max lifetime income, minimal flexibility.
- Give up: access to principal and adjustable withdrawals.
Surrender Charges: The One Cost You Need to Be Aware Of
- If you withdraw money before the annuity’s surrender period ends (typically 3-10 years), you may pay a surrender charge ranging from 5-10%, decreasing over time.
- This is not a hidden fee—it’s clearly disclosed in the contract.
- How to Avoid It: Choose an annuity with a shorter surrender period or ensure you don’t need to withdraw funds early.
Fee Types—What They Do, When They Help, and No-Fee Trade-Offs
- Mortality & Expense (M&E)
What it does: Pays the insurer for guarantees (longevity risk, death benefit, contract guarantees).
Adds value when: You need lifetime income or death protection.
Drags when: You just want growth without guarantees.
No-fee trade-off: Fixed/MYGA and most FIAs avoid M&E, but you lose VA-style guarantees tied to M&E. - Subaccount (Investment) Costs
What it does: Funds professional investment management inside a VA.
Adds value when: You want active/specialized funds within the annuity.
Drags when: Low-cost index exposure elsewhere would suffice.
No-fee trade-off: FIAs/MYGAs skip fund expenses, but you lose mutual-fund-style investing. - Administrative / Maintenance
What it does: Covers recordkeeping and service.
Adds value when: You want hands-on support and easy processing.
Drags when: You’re comfortable self-managing.
No-fee trade-off: Some no-frills contracts keep costs down but offer less white-glove service. - Rider Fees (GLWB, enhanced death benefit, LTC-style features)
What it does: Buys optional guarantees, like lifetime withdrawals without annuitizing.
Adds value when: You want a retirement paycheck for life or legacy enhancements.
Drags when: You won’t use the guarantee (or you’re young and paying for a benefit far in the future).
No-fee trade-off: You save costs, but lose the guarantee (income, legacy, or care-related features).
Helpful Tip: Be careful not to let “cost” blind you to “value.” Sometimes paying a 1% fee buys you a 7% income guarantee you can’t get otherwise. Read our guide on why choosing a no-fee annuity just to avoid fees can backfire.
Commission-Based vs. Fee-Based Annuities: Which Is Cheaper?
- Commission-Based Annuities:
- No upfront cost to the buyer; the insurance company pays the commission.
- Some offer higher payouts.
- This is the cheaper route for consumers because the insurance company pays the commission and not the client.
- Fee-Based Annuities:
- Charges annual advisory fees apply (typically 1% per year).
- Best for investors who want professional management.
Expert Product Tip: If your advisor operates under a fiduciary or Registered Investment Advisor (RIA) model and you specifically need to compare individual contracts, explore our curated list of the best fee-based annuities currently available on the retail market.
The Myth of Hidden Fees and High Commissions in Annuities
- The days of excessive commissions are over—every annuity sale must be documented for suitability and approved by a compliance team.
- Agents can no longer sell annuities just for high commissions; they must prove that the annuity fits your financial needs.
- Every dollar in an annuity contract is accounted for, just like the 100 pennies in a dollar analogy used by actuaries.
Are There Hidden Fees?
While annuities don’t have “hidden fees” in the deceptive sense, many charges are indirect or misunderstood:
- Spread, caps, or participation rates in indexed annuities reduce interest crediting.
- M&E fees in variable annuities are often overlooked in marketing materials.
- Fund expense ratios are sometimes buried in prospectuses.
Comparing Annuity Fees to Other Investment Products
| Product Type | Average Annual Fee Range | Notes |
|---|---|---|
| Fixed Annuities | 0% | No annual fees; surrender charges apply |
| fixed index annuities | 0%–1.25% (with rider) | Rider fees optional |
| Variable Annuities | 2%–4% | Includes M&E, admin, fund, rider fees |
| Investment-Only Variable | 0.5%–1.0% | No riders; low-cost structure |
| Mutual Funds (taxable acct) | 0.25%–1.5% | No income guarantees or tax deferral |
| ETFs (taxable acct) | 0.03%–0.5% | Lowest cost; no guarantees or deferral |
Expert Advice: Comparing an annuity’s fee to an ETF’s expense ratio isn’t apples-to-apples. One protects your income; the other doesn’t. Read our guide on why annuities feel too expensive to learn how to evaluate the true cost versus the value provided.
Final Thoughts: How to Minimize Annuity Fees
- Choose fixed annuities for a no-fee option with guaranteed growth.
- Skip unnecessary riders if you don’t need extra benefits.
- Work with a trusted broker who compares multiple annuities to find low-cost options.
Want a low-cost annuity with the highest payouts? The best way to avoid overpaying is to see a side-by-side comparison of actual contracts. Request a free annuity quote to receive an illustration that clearly breaks down the fees and benefits of the market’s top-performing options
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Questions From Our Readers
Do annuities have high fees?
The fees associated with annuities can vary but are typically higher than those associated with other investment products (variable annuities). This is because annuities are complex products, and there are a variety of costs that go into them. However, it is essential to remember that not all annuities have high fees. Some annuities have low fees, and there are even some that have no fees at all. Therefore, shopping around and comparing different annuities is vital before deciding.
What annuities have the lowest fees?
Yes, several annuity types have no annual fees. Multi-Year Guaranteed Annuities (SPIAs) and Deferred Income Annuities (DIAs) also usually carry no annual fees. However, all of these may include surrender charges if you withdraw funds early.
Are there annuities with no fees?
Yes, there are annuities with no fees. These annuities are typically called “no-load” annuities. However, even though these annuities don’t have any upfront fees, they may still be other costs (like surrender charges). Therefore, reading the fine print and understanding all the fees before purchasing an annuity is essential.
What is a rider charge on an annuity?
A rider charge on an annuity is an additional fee that can be added to the cost of the annuity contract. Riders are optional features that provide additional benefits, such as death benefits, long-term care coverage, or guarantees on the minimum interest rate earned on the annuity. The cost of riders is typically an additional charge on top of the annuity’s base premium and can vary depending on the type and length of coverage.
Are annuities expensive?
Annuities can be expensive, as they typically come with various fees, charges, and expenses, including administrative fees, rider charges, and mortality and expense risk charges. The cost of an annuity can vary depending on the type of annuity, the length of coverage, and the terms of the contract. It is essential to consider an annuity’s costs and benefits carefully and consult with a financial professional before deciding.
Do annuities have hidden fees?
While annuities don’t have “hidden” fees in the deceptive sense, many buyers aren’t fully informed about indirect costs. For example, fixed index annuities may not charge a fee, but caps, spreads, or participation rates can limit credited interest. Variable annuities disclose fees in the prospectus, but many investors don’t read them, leading to surprises. The best defense is working with a fiduciary or broker who clearly explains all fees in writing.