Do Annuities Have Hidden Fees? Here Is the Truth.

"Annuities are full of hidden fees." You have probably heard some version of this. Like most sweeping statements about financial products, it is partly true and mostly misleading.

The reality depends entirely on which type of annuity you are talking about.

Fixed Annuities (MYGAs): No Annual Fees

Multi-Year Guaranteed Annuities — the simplest type of fixed annuity — have no annual fees. None. You deposit money, earn a guaranteed rate, and get your principal plus interest back at maturity.

The insurance company makes money on the spread between what they earn on their investment portfolio and what they credit to you. That spread is built into the rate you are offered — it is not a separate charge that appears on a statement.

If a MYGA shows a 5.50% rate, you earn 5.50%. No fee subtracted.

Fixed Indexed Annuities: No Annual Fees on the Base Product

A standard FIA also has no annual management fee. The carrier's cost is embedded in the crediting strategy — specifically in the cap rate or participation rate they set. A carrier offering a 10% cap is providing less upside than theoretically possible because the cost of the options they use to fund your participation is built in.

You are not charged a fee. You are simply limited in your upside — which is the trade-off for having no downside.

Optional Riders: These Do Have Fees

Here is where fees enter the picture. Many FIAs offer optional income riders, enhanced death benefit riders, or LTC riders. These add genuine value — but they do have annual costs, typically 0.5% to 1.25% per year, charged against either your account value or your benefit base.

If you add an income rider to your FIA, that fee applies for as long as the rider is active. It is disclosed upfront in the contract. It is not hidden — but it does need to be understood and factored into your comparison.

Variable Annuities: Yes, These Have Significant Fees

Variable annuities — a different product entirely — do have annual fees, and they can be substantial. Mortality and expense charges, administrative fees, and subaccount management fees can combine to 2–3% or more per year. Variable annuities also expose your principal to market losses.

Most of the criticism about "annuity fees" is specifically about variable annuities, which are a different product from fixed or indexed annuities. Conflating the two is one of the most common sources of confusion in retirement planning conversations.

The Surrender Charge

One charge worth understanding in all fixed annuities: the surrender charge. If you withdraw more than your free withdrawal amount (typically 10% per year) before the surrender period ends, you pay a penalty.

This is not an ongoing fee — it is a consequence of early withdrawal, similar to a CD early withdrawal penalty. It exists because the insurance company made a long-term investment commitment when they took your deposit. If you need to exit early, there is a cost.

Surrender charges decline over the contract term and reach zero by the end of the surrender period.

What You Are Actually Paying For

When you buy a fixed annuity, you are paying — through the spread or the cap rate — for:

• A guaranteed interest rate with no market risk
• Tax-deferred growth
• Principal protection
• The insurance company's promise to pay you back

Whether that trade-off makes sense depends on the alternative. Compared to a brokerage account with 1–1.5% annual advisory fees plus underlying fund expenses, a no-fee fixed annuity with a 5.50% guaranteed rate is often the cleaner deal.

Questions about how fees work on a specific product you are considering? Reach out — we will walk through the contract terms before you commit to anything.