Annuity fees explained: What you pay and how to compare them

When saving for the future, achieving financial security is often the name of the game. Annuities can support that goal by offering predictable growth and long-term income options. 

But projecting investment earnings is more complex than saving money or calculating returns based on interest rates. Some annuities come with fees and commissions that influence how much you actually earn over time. Understanding these costs helps you choose the best option for your financial plan. 

Read on to learn more about six common categories of annuity fees, their typical rates, and what these costs look like in practice. Plus, explore best practices for comparing fee structures before you invest or contribute.

What are annuity fees and why do they matter?

Annuity costs are short- and long-term charges that can cover administration fees, insurance risk, and withdrawal penalties. These costs vary by annuity type, and each insurance company sets its own structure.

There’s a wide range of annuity fees, and while some are relatively low, others can add up. For example, you can expect minimal mortality and expense (M&E) fees from 0.5 to 1.5% and rider fees of 0.25 to 1% annually. But annuities with several riders and comprehensive administrative fees can result in high costs, especially over time. Not all annuities have these fees to it is important to review your contract before purchasing. 

6 annuity fees and commissions to consider

Every annuity contract is different, but there are common fees and commissions that many investors will find. Here are six that you should know about before investing or contributing.

Surrender charges

Surrender charges are early-withdrawal fees you pay when you withdraw more than the allowed amount before the end of the “surrender period,” which varies by product. Some contracts allow you to withdraw at certain moments or take out money early in extreme situations (like medical emergencies) without penalty. 

The insurer generally sets this fee on a sliding scale that starts at a higher percentage at the beginning of the period and gradually declines. In general, percentages are highest on deferred annuities. For example, in the first year, the surrender charge may be a 7% penalty but drop a percentage point every year after.

Administrative

Companies that issue annuities typically charge fees to cover expenses like overhead and staffing. You’ll find these costs built into an annuity contract. They’re often around 0.15% to 0.30% annually or a flat rate of $25 to $100.

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While these charges are common, some providers don’t include them. Choosing an annuity without this extra cost helps keep more money working for you, which can improve your net returns or growth over time.

Upfront

Upfront fees are one-time commissions built into the annuity’s cost. These fees may appear as sales loads and are a percentage — typically from 1% to 8% — and are built into the product. This means your principal is not reduced by this percentage as it is already factored into the product. 

Products like Gainbridge annuities, which you can purchase directly online without going through a third party or agent, are an exception to this rule. Gainbridge® charges you no commission. 

Riders

Riders are optional benefits that aren’t typically included in a standard annuity contract. They can provide inflation resistance, access to funds in medical emergencies, or guaranteed minimum income. Each rider may increase the annual expense. So annuity investors need to weigh the value of each rider before adding that additional protection. Some riders come at no additional cost. 

Common riders include: 

• GLWB/lifetime income: A guaranteed lifetime withdrawal benefit (GLWB) or lifetime income rider allows you to withdraw a certain percentage of your withdrawal benefit base during a set period of time or for life, even if there are no funds in the account - provided the no funds is not from excessive withdrawals. 
• COLA/inflation: Cost-of-living adjustment (COLA) riders can provide a larger payout amount during inflation. These can help investors preserve purchasing power and help ensure you maintain a predictable, guaranteed income in retirement. 
• LTC: Long-term care (LTC) riders can cover certain medical expenses, like home care or assisted living, preventing you from dipping into your savings during a qualifying health event.
• Death benefit: Death benefit riders guarantee returns for beneficiaries, transferring either the initial premium paid or the current account value to your loved ones when you pass.

Mortality and expense risk

Mortality and expense (M&E) fees serve as risk protections, often part of variable annuity contracts. This benefit supports the guarantees offered by the insurance company, including certain payout protections. M&E fees can range from 0.5 to 1.5% of your account's value, depending on the type of annuity, and you pay them annually.

Underlying investment fees

Underlying investment fees are management costs you pay to the fund manager who controls and analyzes your investments. This fee category can also include transaction costs, like brokerage fees. 

This fee is relative to the fund's net assets — often in the range of 0.2% to 1% but can be higher in active funds. Underlying investment fees typically only apply to variable annuities.

Fees for annuities by type: fixed vs. indexed vs. variable vs. immediate

The rate of annuity fees depends on the type of annuity and its growth potential, market exposure, and level customization. As a general rule of thumb, high-yield (variable) annuities have heftier fees, while fixed or immediate ones often incur relatively low costs. Indexed annuities are somewhere in the middle. Here’s more on each.

• Fixed annuities: Earn a fixed, guaranteed interest rate, which makes calculating the fees linked to them straightforward. You also pay fewer management expenses on this low-risk annuity option.
• Variable annuities: Are more volatile, riskier investments than their fixed counterparts, but returns can be higher — as can management and administrative costs. 
• Indexed annuities: Earn interest linked to the performance of markets like the S&P 500, while remaining protected during downswings. Indexed annuities have some managerial and administrative fees, typically built into the product, and they’re not as high as those associated with variable annuities.
• Immediate annuities: Are a type of fixed annuity that dispenses your initial contribution in monthly, quarterly, or yearly payments. These annuities can carry lower fees than market-dependent ones as they require less managerial oversight.

How much are annuities per month? Real-world examples

If you’re about to invest or contribute, it’s smart to ask: How much does an annuity cost per month? This way, you can form a realistic idea of returns or growth. Here’s a hypothetical example to show you how much an annuity would cost: A variable annuity of $100,000 with a 2.3% annual fee rate will result in $2,300 per year in costs, which breaks down to about $190 a month. Different rates and fees will produce different results. 

Keep in mind that costs vary. For example, a fixed multi-year guaranteed annuity (MYGA) has a built-in, fixed commission and typically will not incur further fees, except in cases in which the investor opts for an add-on, like a rider, or must pay a penalty on an early withdrawal.

Are fixed annuities fee-free?

Fixed annuities typically don’t charge annual fees, so some consider them fee-free. But the insurance company still earns a “spread cost,” which is built into the credited interest rate. This cost comes out before interest is added to your account. It’s not a line-item charge, so you never see it deducted directly. 

Fixed annuities can incur penalties for withdrawals during the surrender period. Your contract will clearly state the terms of this potential cost.

How to compare annuity fees before you buy

If fees are a driving factor in which annuity you buy, learn more about these charges with the following tips:

• Read the contract and fee table if available: Ask the annuity issuer for the product’s contract — a legal document outlining product terms — and fee table, so that you can review costs before signing on.
• Ask for all-in annual cost: Have the insurance company provide you with the sum of all fees you’ll incur in a year — from managerial to M&E. Knowing the total cost of an annuity per year can make calculating your earnings easier.
• Compare surrender schedules: View the surrender period percentages. You might need to withdraw early in a financial emergency, and it’s a good idea to know what this might cost ahead of time.
• Compare rider value versus cost: Riders can offer excellent protections, like taking care of your living expenses during an economic downturn. But weigh the potential financial benefits of riders to ensure they’re worth the investment.
• Review the insurer's financial strength: External entities like AM Best rate insurer financial health, and you can check providers’ ratings before signing on.

Enjoy no hidden annuity fees and charges with Gainbridge

Understanding how fees work across different annuity types helps you compare products with confidence. It’s especially helpful to know when a provider removes unnecessary charges. That’s where Gainbridge stands out. Its digital-first approach removes the extra costs many traditional companies still build in. This gives you a simpler, more transparent way to buy an annuity.

When you buy directly through us, you skip the middlemen. That means no commissions and no hidden charges to factor in. Explore Gainbridge to compare today’s annuity rates and use our annuity calculator to see how we can help your money grow over time and support your long-term plans.

‍This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes.Guarantees are based on the financial strength and claims paying ability of the issuing insurance company.