Last updated: February 2026 | By AnnuityJournal Editorial Team
Annuities can be powerful retirement tools — but they come with a fee structure unlike almost anything else in personal finance. Some fees are disclosed upfront. Others are buried in the contract. And a few are so common that agents rarely mention them at all.
Before you sign anything, you need to know exactly what you’re paying. Here’s a complete breakdown.
Key Takeaways
- Variable annuities typically carry 2%–3% in total annual fees; fixed and MYGA annuities are often fee-free
- A 1.25% M&E fee on a $200,000 annuity costs $2,500 per year — before any other charges
- Surrender charges can lock up your money for 7–10 years with penalties starting at 7%–9%
- Optional riders add 0.50%–1.50% per year on top of base contract fees
- Fixed and MYGA annuities are the lowest-fee options; variable annuities carry the highest
What Are Annuity Fees?
Annuity fees are charges deducted from your contract value — either annually as a percentage of assets or as a one-time penalty for early withdrawal. Unlike mutual fund expense ratios, annuity fees are often layered, meaning several charges apply simultaneously to the same money.
The type of annuity you own determines which fees apply. Variable annuities carry the most fees. Fixed and MYGA annuities typically carry none.
Mortality and Expense (M&E) Risk Charge
The M&E fee is the most common annuity charge and the one most often glossed over in sales presentations. It compensates the insurance company for the mortality risk it takes on — primarily the guarantee that your account won’t be depleted during your lifetime.
Typical range: 0.50%–1.50% per year. On a $200,000 variable annuity, a 1.25% M&E fee costs $2,500 annually — compounding against your returns year after year. Over 20 years, that fee alone can cost well over $60,000 in lost growth.
Fixed annuities and MYGAs do not charge M&E fees. The insurance company’s margin is built into the credited interest rate instead.
Surrender Charges: The Cost of Early Exit
Surrender charges are penalties for withdrawing money before the surrender period ends. They’re not unique to annuities — CDs have early withdrawal penalties too — but annuity surrender periods are typically longer and the charges steeper.
A standard surrender schedule might look like this:
| Year | Surrender Charge |
|---|---|
| Year 1 | 8% |
| Year 2 | 7% |
| Year 3 | 6% |
| Year 4 | 5% |
| Year 5 | 4% |
| Year 6 | 3% |
| Year 7 | 0% |
Most contracts include a free withdrawal provision — typically 10% of account value per year — that lets you access some money without triggering surrender charges. Know this number before you sign.
Administrative and Contract Fees
Many variable annuities charge a flat annual administrative fee — typically $25–$75 per year — to cover record-keeping and contract maintenance. Small in dollar terms, but worth knowing about.
Some contracts also charge a policy fee based on account value (0.10%–0.30%). These fees often disappear once your account reaches a certain threshold — usually $50,000 or $100,000.
Underlying Fund Expense Ratios
If you own a variable annuity, the subaccounts (similar to mutual funds) charge their own expense ratios — separate from the M&E fee. These typically run 0.50%–1.50% per year and are layered on top of every other fee.
A variable annuity investor paying a 1.25% M&E fee plus a 0.80% fund expense ratio is already at 2.05% annually before adding any riders. That’s a significant headwind against long-term growth.
Rider Fees: Optional but Expensive
Riders are add-on benefits that can be attached to a base annuity contract — income guarantees, enhanced death benefits, long-term care coverage. Each rider adds cost.
- Guaranteed Lifetime Withdrawal Benefit (GLWB): 0.50%–1.25% per year
- Guaranteed Minimum Death Benefit (GMDB): 0.20%–0.50% per year
- Long-term care rider: 0.50%–1.00% per year
- Return of premium rider: 0.25%–0.60% per year
Before adding a rider, calculate the total lifetime cost and compare it to the benefit you’d actually receive. A GLWB charging 1.00% per year on a $200,000 annuity costs $2,000 annually — $40,000 over 20 years. Is the guaranteed income stream worth it for your situation?
How Fees Impact Long-Term Returns
Fees compound in reverse — they compound against you. Consider two investors who each put $200,000 into an annuity earning 6% gross returns:
| Low-fee MYGA (0% fee) | Variable Annuity (2.5% total fees) | |
|---|---|---|
| Year 10 | $358,170 | $279,083 |
| Year 20 | $641,427 | $390,373 |
| Difference | — | $251,054 less |
Fees aren’t just a cost — they’re a permanent drag on every dollar of future growth.
How to Compare Annuity Fees
When shopping annuities, ask for the total annual cost in writing — not individual fee line items. Carriers are required to disclose fees in the annuity prospectus (for variable annuities) or the contract itself.
Key questions to ask:
- What is the total annual fee as a percentage of account value?
- What are the surrender charges and how long do they last?
- What is the free withdrawal allowance each year?
- What does each optional rider cost — and what exactly does it guarantee?
If you want guaranteed returns with no annual fees, compare 5-year MYGA rates — these are fixed-rate contracts with no M&E fees and no investment subaccounts.
Frequently Asked Questions
Do all annuities have fees?
No. Fixed annuities and MYGAs typically have no annual fees — the carrier’s margin is built into the credited interest rate. Variable and indexed annuities carry fees; variable annuities carry the most.
What is a reasonable annuity fee?
For a variable annuity with no riders, total annual fees below 1.5% are considered reasonable. Above 2.5% is expensive. Fixed and MYGA annuities should carry zero annual fees.
Can I get out of an annuity if the fees are too high?
Yes — but you may owe surrender charges if you’re still within the surrender period. Check your free withdrawal provision first. You can also do a 1035 exchange to move to a lower-cost annuity without triggering a taxable event.
Are annuity fees tax deductible?
No. Annuity fees are not tax deductible. They simply reduce the net return on your contract.
What happens to rider fees if I don’t use the rider?
You pay the rider fee regardless of whether you use it. Some contracts allow you to remove riders to stop paying the fee, but this varies by contract — check your terms carefully.
