Annuity Fees: What You're Actually Paying (And What You're Not)

Not All Annuities Work the Same Way

The "annuities are loaded with hidden fees" critique gets applied uniformly to all annuities — as if a MYGA and a variable annuity with four riders are the same product.

They're not. Fee structures vary enormously by annuity type. Understanding which fees exist, and whether they apply to the product you're considering, is the only way to evaluate the criticism accurately.

MYGAs: Typically No Annual Fees

Multi-Year Guaranteed Annuities are the simplest structure. You deposit a premium, the carrier guarantees a rate, and interest accumulates for a fixed term.

MYGAs generally have no annual management fees, no mortality and expense charges, and no administrative fees. The carrier earns its margin through the spread between what your premium earns in their general account and the rate they credit to you.

That spread isn't disclosed as a fee — it's built into the rate. But there are no line-item charges deducted from your account.

The main cost consideration in a MYGA is the surrender charge — a declining penalty for withdrawing funds before the end of the term. This is disclosed in the contract, and it's not unique to annuities (CDs have similar early withdrawal penalties). Many MYGAs allow 10% of account value per year penalty-free.

Bottom line: If you're looking at a MYGA, "hidden fees" generally aren't the issue.

FIAs: Base Product Fees vs. Rider Fees

A base Fixed Indexed Annuity — without any optional riders — typically has no annual management fee or mortality and expense charge either. Like a MYGA, the carrier's margin is built into the crediting structure (caps, participation rates, spreads).

The fee conversation becomes relevant when income riders or benefit riders are added.

These riders typically charge 0.75% to 1.25% of the account value (or the income base) per year, deducted annually. In exchange, they guarantee a minimum income stream or provide other features.

Whether a rider is worth its annual cost depends on:

• How long you plan to defer income before electing benefits
• The rollup rate during deferral
• The payout rate when income begins
• What you'd generate from the same premium with a SPIA or other structure

Riders aren't inherently bad. They're a tradeoff: you give up a portion of growth in exchange for a guaranteed income floor. Whether that tradeoff makes sense is a math problem, not a philosophy.

Variable Annuities: More Fees, More Complexity

Variable annuities invest in sub-accounts — essentially mutual funds within the annuity wrapper. They carry:

• Mortality and expense (M&E) charges: typically 1.25–1.50% per year
• Administrative fees: often $25–$50/year
• Sub-account management fees: 0.50–1.50% per year depending on the fund
• Rider charges: if income or death benefit riders are added, 0.75–1.50%+ per year

Total annual costs in a variable annuity can reach 3–4% or more. For the market exposure and features provided, those costs need to justify themselves against alternatives.

Variable annuities are a separate category from fixed and fixed indexed annuities — but they're often lumped into the same "annuities have fees" conversation.

The Surrender Charge Is Not a Fee (But Matters)

Surrender charges are sometimes characterized as fees. They're not exactly — they're a contractual penalty for early withdrawal that protects the carrier's investment model.

What matters is:

• How long the surrender period lasts
• What the charge schedule looks like (e.g., 8% year 1, declining to 0% by year 8)
• What free withdrawal provisions exist
• Whether the period aligns with your actual liquidity needs

If you don't need the money for five years and you're buying a five-year MYGA, the surrender charge is largely irrelevant. If your liquidity needs are uncertain, that's a reason to be more conservative about how much you allocate.

Questions to Ask About Any Annuity

1. Is there an annual administrative or M&E charge? How much? 2. Are there any rider charges? What are they and what do they provide? 3. What is the surrender charge schedule? 4. What free withdrawal provisions exist? 5. How is the carrier's margin built into the crediting structure?

Any advisor or carrier should be able to answer these directly and in writing. If they can't — or won't — that's more informative than any fee schedule.