1. Annuity Fees

When you buy an annuity, the salesperson involved will get a commission. Expect to also pay for management and underwriting expenses. According to financial experts, whether variable or fixed, annuities often have higher fees than the typical mutual funds that you invest in.

That’s because annuities provide guarantees for your principal balance as well as your guaranteed growth. These guarantees are basically your assurance that you won’t lose your principal balance and will get a certain return on investment each year.

Another hidden cost can arise if the market outperforms the rate of return you’re getting. For example, if you’ve purchased an annuity with a 6% guaranteed return on investment and the stock market earns 21%, you’ll lose 15% growth.