While many financial products — including annuities — come with fees, understanding them upfront helps you make a more informed decision. There's no avoiding these additional costs, but you should know how much you're paying for an annuity contract upfront.

All compliant providers publish detailed disclosures and transparent fee schedules so you know the true cost of your annuity before making a deposit. But without previous experience with annuities, it can be difficult to understand how these fees function in your investment plan.

Thankfully, annuity fees fall into a few standard categories and share similar traits across annuity contract types and providers. Learning the most common annuity fees gives you greater discernment as you explore available contracts, estimate the actual cost of annuities, and choose an ideal package.

Since annuity fees vary widely depending on contract type and optional features, they can significantly influence long-term income and returns.

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What are annuity fees and why do they matter?

Determining the cost of an annuity involves more than just looking at the initial deposit and expected growth. To understand the full cost, you also must consider any commissions and fees that come with the annuity.

These may include simple-to-calculate flat rates or more dynamic fee models that shift with the latest stock market swings. Annuity fees might be one-and-done or repeat on an annual schedule, and they may include optional add-on fees or penalties for withdrawing too early.

Alternatively, some digital native annuity platforms like Gainbridge^® allow you to buy annuities directly, eliminating the commissions or hidden fees a traditional broker or advisor would take. Be sure to include all of the expected and potential expenses listed in your specific plan when determining how these costs affect long-term gains.

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6 annuity fees and commissions to consider

Each annuity contract has a unique fee schedule, but many plans share a few standard costs. Reviewing the most common annuity fee types helps you better anticipate the price implications of opening a contract.

Not all annuities charge upfront commissions. Some digital platforms AS Gainbridge offer commission-free options, while others bundle costs into ongoing fees.

1.   Surrender charges

Surrender charges and deferred sales charges are similar but not exactly the same. Both are fees you pay for withdrawing money before the end of the set term. But surrender charges (also know as withdrawal charges) usually apply to insurance products and annuities, and deferred sales charges are more common with mutual funds.

Depending on the annuity's contract, you may be allowed to make penalty-free withdrawals at particular times. Some contracts also have add-on benefits that let you  take out money early (without paying a surrender or withdrawal charge) under circumstances like medical emergencies. And most annuities allow you to withdraw up to 10% of your account’s value per year. If this is the case, when you withdraw more than 10% of your account value, you may incur surrender charges.

Anyone investing in deferred annuities must review the surrender charge schedule to fully grasp the fee implications on early withdrawals.

2.   Administrative

From recordkeeping and data storage to transaction processing and customer care, there are many costs involved in running an insurance company. To account for these infrastructure expenses, insurers often add recurring fees listed as administrative into their annuity contracts.

An administrative fee is usually less than 1% of an annuity's total value and is typically charged once per year. While this is a standard part of annuity prices offered through third-party providers, on online platforms where you can buy an annuity directly — like Gainbridge^® — there are no administrative fees. This dramatically cuts down on administrative commissions and expenses, putting more money back in your hands.

3.   Upfront

When you open an annuity, you might pay your first commission as an upfront fee. Also known as sales loads, upfront fees are one-time charges set as a percentage of your total principal that typically range between 1–8%. For instance, if you pay a commission of 7% on a lump sum investment of $100,000, your actual deposit is $93,000. 

4.   Riders

Annuity riders are optional benefits you can include in your annuity for extra protections, including fixed income for life, inflation-adjusted withdrawals, and long-term care bonuses. While riders can help provide peace of mind, they can put a dent in your growth. Typically, each rider costs a percentage of your annuity's value annually, so review how each of these benefits impacts your earnings potential before deciding whether they're worth it.

5.   Mortality and expense risk

When insurers offer protections such as guaranteed lifetime income or death benefits, they include a mortality and expense risk (M&E) fee as a form of protection. Most common in variable and fixed index annuities, these fees cover the risk insurance providers take when agreeing to pay beneficiaries if you die — or if you outlive your savings with lifetime guaranteed withdrawals.

Similar to upfront fees, M&E fees are a percentage (usually 0.5–1.5%) of your account's value, but you pay them annually.

6.   Underlying investment fees

If you’re familiar with management fees on mutual funds or exchange-traded funds, underlying investment fees play a smilar role in annuities. With this fee, you're paying the annuity's fund manager to oversee your investments, including market analysis, custodial services, and transaction costs like brokerage fees.

Many variable annuities use expense ratios — or a set percent of the fund's net assets — to express how much you'll pay in underlying investment fees yearly. Each investment vehicle has a distinct expense ratio attached to it, so review your provider’s list of these ratios to estimate your portfolio’s cost.

Annuity cost by type

Generally, if an annuity offers greater growth potential, direct market exposure, or customization, it has higher fees. By contrast, annuities with set-in-stone rates and limited add-ons can have fewer fees.

Fees for different annuity types

• Variable annuities: This contract type lets you link your potential returns with assets like mutual funds. Although the volatility in variable annuities increases their risk-to-return profile, managing these assets can come with higher administrative and managerial costs.
• Fixed index annuities: A fixed index annuity tracks the performance of a market index like the S&P 500 while simultaneously offering a guaranteed (or fixed) minimum rate of return. In this arrangement, your account is credited with interest liked to potential the index it tracks while enjoying protection during down years. But you’ll have to pay administrative and managerial fees.
• Fixed annuities: The predictability of a fixed interest annuity generally makes it easier to calculate your total fees from your term's start. It’s simple to figure out how much you'll pay, and the total fees may be less expensive since this type avoids market volatility or the extra managerial expenses of trading assets.
• Immediate annuities: An immediate annuity is fixed and predictable for your entire term because it instantly converts a lump sum of cash into a guaranteed income stream. Without underlying investments or market exposure, these products come with lower maintenance fees.