When people start learning about annuities, one of the first concerns they bring up is fees.
“John, are these fees going to destroy my retirement income?”
It’s a fair question. And the honest answer is:
Yes—fees can hurt you.
But in the right situation, they can also help you dramatically.
It all depends on what you’re trying to accomplish.
Let’s walk through how annuity fees really work, when they’re harmful, and when they actually increase your lifetime income.
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When High Fees Become a Problem
Recently, I spoke with a gentleman who owned a variable annuity.
He was paying around 3.5% to 4% per year in fees.
That’s significant.
On paper, he had a large balance—about $1.7 million.
But after all those fees, his guaranteed lifetime income was only about $88,000 per year.
He knew something wasn’t right.
Those fees were quietly eating away at his growth and limiting his income potential.
This is where fees can become dangerous:
When you’re paying a lot… and getting very little in return.
Paying Less—and Getting More
When we reviewed other options, he was shocked.
By restructuring his strategy, he could nearly double his guaranteed income—to about $177,000 per year—with fees closer to 1%.
Same retirement goal.
Much higher income.
Lower cost.
That’s the difference between:
- Paying fees blindly
- And paying fees strategically
Fees themselves aren’t the enemy.
Bad value is.
What Are You Really Buying With an Income Rider?
Many annuities charge fees because they include an income rider.
This rider creates:
- Guaranteed lifetime income
- Contractual payouts
- Predictable “pension-style” cash flow
If you’re paying a fee for that guarantee, you’re buying security.
And security has value.
Over time, those fees will reduce your account balance.
That’s normal.
But if the purpose of the annuity is income, the balance is secondary.
You’re not buying this for a big statement number.
You’re buying it for a paycheck that never stops.
A Real-World Example: $750,000 Case Study
Let me show you how this works in practice.
A couple in Pennsylvania invested $750,000 into an income-focused annuity.
They planned to start their income at age 67.
With an income rider, they received:
- $78,000 per year guaranteed for life
If there was little or no market growth, their account balance would likely run out in their mid-70s.
But the income continues.
If they live to 95, they’ll receive over $2.2 million in total income.
That’s a pension created from personal savings.
That’s what the fee purchased.
What About Long-Term Care Features?
Some contracts include enhanced benefits for long-term care.
For example:
- Income may temporarily double
- Coverage may last up to five years
- Benefits are tied to remaining account value
These features add value—but they’re not unlimited.
They’re designed as supplements, not full LTC insurance.
Again, you’re paying a fee for specific protections.
Yes, Fees Add Up—But Look at the Net
In this example, total fees over time were around $150,000.
That sounds high.
Until you compare it to what it produced:
- Nearly $1 million more in lifetime income versus a no-fee option
Would you pay $150,000 to gain $1 million?
Most retirees would.
That’s why I focus on net results, not just expenses.
The No-Fee Alternative: Lower Income, More Balance
Now, what if you truly hate fees?
There are no-fee annuities.
In this same scenario, without a fee-based income rider:
- Income dropped to about $46,000 per year
- Account balance lasted longer
- No annual rider charges
This option works for people who value:
- Flexibility
- Growth
- Legacy planning
But you give up higher guaranteed income.
It’s a trade-off.
Growth-Based Income: Higher Upside, More Risk
Some annuities tie income to market indexes like the S&P 500.
They may offer:
- Participation rates (often 40% or less)
- Adjustable caps
- Variable future income
If markets perform well, income can rise.
If not, it may fall.
These products can be useful—but they rely on performance.
Income riders don’t.
They’re contractual.
Will Fees Destroy Your Retirement?
In most cases?
No.
When used correctly, they usually improve it.
Here’s why:
- Fees fund higher lifetime payouts
- They remove market timing risk
- They eliminate guesswork
- They create stability
If you’re paying a fee and getting guaranteed income in return, that fee is working for you.
If you’re paying high fees with no clear benefit, that’s when you have a problem.
My Approach: Balance, Transparency, and Choice
I don’t believe in “one-size-fits-all” retirement plans.
Most people I work with use:
- Some income annuities (with fees)
- Some growth annuities (no fees)
- Some legacy-focused assets
That way, you get:
- Guaranteed income
- Growth potential
- Family protection
And I show every option—high commission, low commission, everything.
You decide.
My job is to explain it clearly.
Conclusion
Fees aren’t good or bad by themselves.
They’re tools.
What matters is:
“What am I getting for what I’m paying?”
If the answer is:
- Higher lifetime income
- Peace of mind
- Predictability
Then the fee is often worth it.
If not, we find something better.
Need help with finding the best annuity for your retirement?
Click here to schedule a call with me.
On the call, I can help you:
- Determine what type of annuity is best for you
- Find the highest paying annuities for your unique situation
- Answer any other questions you may have