Scenario
You’re evaluating annuities and trying to decide between one with no fees and one that charges an annual fee—usually because it comes with a Guaranteed Lifetime Withdrawal Benefit (GLWB). Naturally, the no-fee option looks more attractive on the surface. But here’s the truth: with annuities, you get what you pay for.
Paying an Annual Fee Can Provide Income Guarantees Without Sacrificing Control
Key Insight: Yes, fee-based annuities deduct from your account value, but you’re buying protection and flexibility—not handing over your savings.
Why the Fee Exists
The annual fee (usually between 0.75% and 1.3%) pays for the insurance company’s risk of guaranteeing lifetime income, even if your account runs out of money. That guarantee doesn’t come free—because the company takes on longevity and market risk.
- You could get up to 7.3% lifetime income at age 65
- You maintain full control of your account
- You can stop or start income anytime
- You still leave behind a death benefit for heirs
You’re not “losing” money—you’re paying the company to ensure you never run out of income, while keeping flexibility that traditional annuities (like SPIAs) force you to give up.
✘ No-Fee Annuities May Cost You More in the Long Run
Key Tradeoff: Avoiding fees means giving up the features that make annuities powerful—income guarantees, flexibility, and legacy control.
To avoid the annual fee, most no-fee annuities require you to annuitize your contract or choose a SPIA or DIA. That means:
- You give up ownership of your savings forever
- Your income is locked in with no flexibility
- Your family gets nothing back if you die early
✔ The insurance company is off the hook
✘ You avoided a small annual fee—but traded away control of 100% of your money
Let’s Be Clear: You’re Still Paying Either Way
- With a fee-based GLWB, the insurance company takes a small fee every year from your account
- With a no-fee SPIA, you hand over your entire account balance in exchange for monthly income, and the insurance company keeps anything that’s left when you die
So the idea that no-fee = “free” is false. You’re just paying differently—and with far more permanent consequences.
Who Benefits Most From an Annuity With Fees
- People who want a guaranteed income without surrendering their savings
- Retirees who value control, liquidity, and legacy
- Anyone planning to live long or delay income for higher payouts
✘ Who Doesn’t
- People who want a simple, immediate payout and aren’t concerned about control or leaving a legacy
- Clients who are very near-term focused and want to maximize income now without regard to flexibility
Also Consider: Layering a Life Insurance Policy
If you insist on using a no-fee life-only SPIA for maximum income, pair it with a cheap life insurance policy to protect your heirs. But even that approach comes with more complexity and less flexibility than a GLWB.
Bottom Line
Avoiding annuity fees by giving up control of your money makes no financial sense. A fee-based GLWB is the modern solution:
- You keep your account
- You get a guaranteed lifetime income
- Your heirs still get what’s left
- You can increase income by delaying withdrawals
- You retain control every step of the way
You’re not losing money by paying a fee—you’re paying to stay in control and ensure your income doesn’t run out. The alternative is giving up everything to avoid a relatively minor fee.
Speak With a Broker for Free Quotes and Comparisons
At The Annuity Expert, we help you compare individual fee based annuities against top-rated no-fee alternatives to see which option gets you the highest income with the most control. Don’t trade away your savings just to avoid a line-item cost. Book a free, no-obligation call today to get expert guidance and personalized annuity quotes.
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