How Much Am I Really Paying in Annuity Fees?

Annuity fees are one of the most misunderstood parts of the whole product. Some annuities charge almost nothing. Others charge more than 3% every year without the owner realizing it. The difference over 10 or 15 years can be tens of thousands of dollars in lost account value.

The problem is that annuity fees don't show up on your statement the way a bank fee does. There's no line item that says "we charged you $2,847 in fees this year." Instead, the fees are deducted internally, usually daily, and the impact only shows up as slower account growth over time.

This guide walks through every fee category that can appear in an annuity contract, tells you what a reasonable range looks like for each, and gives you a clear way to figure out what your annuity is actually costing you.

The 6 fees your annuity can charge

1. Mortality & Expense charge (M&E)

This is the biggest single fee on most variable annuities. The M&E charge pays the insurance company for the death-benefit guarantee (they promise to pay your beneficiary at least what you put in, even if the market drops) and general administrative overhead. Typical range: 1.00% to 1.50% per year on variable annuities. Fixed and MYGA annuities usually have no separate M&E charge.

2. Rider fees

Optional riders add features to your annuity, and each rider has its own fee. Common riders and their typical costs:

• Guaranteed lifetime withdrawal benefit (GLWB): 0.95% to 1.65% per year
• Enhanced death benefit: 0.15% to 0.75% per year
• Long-term care rider: 0.50% to 1.25% per year
• Return-of-premium guarantee: 0.10% to 0.35% per year

Rider fees add up quickly. A variable annuity with three riders can easily carry 2.5% to 3.0% in rider fees alone on top of the M&E charge.

3. Sub-account fees (variable annuities only)

The mutual-fund-style investments inside a variable annuity each carry their own expense ratio, typically 0.55% to 1.25% per year. This is on top of everything else the carrier charges. Sub-account fees are set by the fund managers, not the annuity carrier, but they're deducted from your account value all the same.

4. Administrative fee

Some contracts charge a flat annual administrative fee, usually $30 to $50, plus a percentage-based admin fee of 0.15% to 0.30%. These often get quietly bundled into the M&E charge on newer contracts.

5. Surrender charges (only if you leave early)

Not an ongoing fee, but the biggest one you'll see if you try to withdraw more than the allowed penalty-free amount during your surrender period. Typical schedules start at 7% to 10% in year one and step down each year until they reach zero (usually at year 7 to year 10). We have a full guide on this at What Is a Surrender Charge, and How Much Am I Really Paying to Get Out?

6. Market Value Adjustment (MVA)

On some fixed and MYGA annuities, if you surrender early, an MVA can be applied on top of the surrender charge. The MVA can work in either direction, depending on how interest rates have moved since you bought. Rising rates typically produce a negative MVA (a further deduction), falling rates a positive one.

What a typical fee load looks like by annuity type

Fees vary dramatically by annuity type. Here's what a typical all-in annual cost looks like for each of the four main types, assuming a contract with common rider features attached.

How to actually find out what your annuity is costing you

Step 1: Locate your prospectus (variable annuities only)

Variable annuities came with a prospectus when you bought them. It's usually 100+ pages. The fee table is typically in the first 20 pages, labeled "Fee Table" or "Summary of Charges." Every fee is disclosed there, though not always in a way that adds up cleanly. If you don't have the prospectus, request one from your carrier or your original advisor.

Step 2: Pull your most recent annual statement

Your statement shows your beginning balance, ending balance, and any charges deducted. Some carriers itemize the fees, others just show a lump "expenses" figure. Note both the total and the effective percentage.

Step 3: Request a written fee summary

Call your carrier's customer service line and ask for a written summary of every fee currently charged on your contract. Include rider fees, M&E, administrative fees, and sub-account expense ratios. They should be able to email or mail this within a few business days.

Step 4: Add them up

Add every annual percentage-based fee together. For a variable annuity, this might look like: 1.25% (M&E) + 1.10% (GLWB rider) + 0.35% (enhanced death benefit) + 0.85% (average sub-account fee) = 3.55% total annual fees.

Step 5: Compare to today's market

This is the step most people skip because they don't have easy access to competitive quotes. An independent audit provides exactly this: what a similar contract would cost today across five to ten major carriers.

What high fees actually cost you over time

The impact of fees compounds. On a $250,000 annuity earning 6% before fees:

The difference between paying 1.00% and paying 3.00% in fees on this contract is roughly $212,000 in lost value over 20 years. That's not a rounding error. That's a house.

Common ways people reduce their annuity fees

Option 1: Drop unused riders

If you're paying for a rider you don't plan to use (an income rider you'll never turn on, an enhanced death benefit that no longer fits your beneficiary plan), you can sometimes cancel it and stop paying that fee. Not all riders are cancellable, and some come with trade-offs.

Option 2: Do a 1035 exchange to a lower-fee contract

A 1035 exchange transfers the account value from your current annuity into a new one without triggering income tax on the gain. This is how most fee reductions happen in practice. The math has to make sense (any surrender charges must be outweighed by the fee savings), but when it does, it can add up quickly.

Option 3: Simplify the sub-account allocation (variable annuities)

If your variable annuity has been sitting in high-expense-ratio funds for years, you can often reallocate to lower-cost sub-accounts within the same contract, dropping your sub-account fees by 0.30% to 0.50% without any exchange.

The bottom line

You should be able to state, in one sentence, exactly what your annuity costs you every year. If you can't, that's a problem worth solving. Most annuity owners we audit are paying more than they realized. Some are paying less than the market average and should stay put. Either way, knowing is worth the two-week investment.