Annuity Fees Explained: What You’re Really Paying For

One of the most common objections I hear about annuities is:
“They all have high fees.”

Do you know that not all annuities even have fees?
And the ones that do are usually the ones protecting your income for life.

In this lesson of the Retirement Income School™, I break down the four main types of annuities—SPIAs, DIAs, MYGAs, and FIAs—plus the one I don’t recommend for safe money: variable annuities.
By the end, you’ll know exactly which annuities charge fees, which don’t, and what you’re actually paying for—so you can make confident, transparent decisions about your retirement income.

The 4 Main Types of Annuities and Their Fee Structures

1️⃣ MYGAs (Multi-Year Guaranteed Annuities)
MYGAs have no fees.
They lock in a guaranteed interest rate for three to ten years, provide tax-deferred growth, and protect your principal with zero market risk.
Think of them as the annuity version of a CD with better tax advantages.

2️⃣ Income Annuities (SPIAs & DIAs)
These also come with no fees.
You exchange a lump sum for lifetime income, and the costs are built into the payout rate.
A SPIA starts income within 12 months—perfect for immediate retirement paychecks.
A DIA defers income two to ten years out to allow your payout to grow.
The trade-off? Once income begins, you can’t access the principal.

3️⃣ FIAs (Fixed Indexed Annuities)
FIAs have no fees unless you add a rider.
They protect your principal, offer market-linked growth, and allow partial liquidity—typically up to 10% per year penalty-free.
Add a Lifetime Income Rider—usually around 0.9–1.25% per year—and you’re not paying a mystery fee; you’re buying a guaranteed paycheck for life.
Many retirees also appreciate the wellbeing or enhanced income benefits these riders can include for long-term care or chronic care needs.

4️⃣ Variable Annuities (Not a Safe Money Solution)
Variable annuities carry the highest fees and full market risk.
They often charge 3–4% or more each year in total costs, spread across mortality and expense charges, investment subaccount fees, and optional riders.
You pay these fees whether your investments go up or down.
Over time, those expenses can significantly reduce returns—one reason I don’t recommend variable annuities for most retirees seeking safe, predictable income.

SPIA/DIA vs. FIA with Income Rider: What to Know

SPIAs and DIAs are simple, straightforward income tools. You give the insurance company a lump sum, and they pay you a guaranteed monthly income—either starting right away (SPIA) or at a future date (DIA). They’re ideal if you want maximum income and don’t need access to your money once payments begin.

By contrast, an FIA with an income rider provides more flexibility. You can still access your account value, leave a legacy for heirs, and even use the annuity for tax strategies like partial Roth conversions. The trade-off is a small annual fee on the rider, but it comes with guaranteed lifetime income and additional features that can grow or adjust for inflation.

Why Transparency Matters

When you understand how fees work, you stop fearing them and start using them strategically.
In a fixed indexed annuity, that small rider fee buys you security — a paycheck you can’t outlive.
In a variable annuity, fees may simply eat away at growth without offering the same guarantees.

Always ask your advisor: “What guarantees am I getting for this fee?”

And be sure they can answer clearly, in plain English.

Key Takeaways

✅ Many annuities have no fees at all (SPIA, DIA, MYGA, FIA without rider).
✅ Riders are optional and add value when you want guaranteed income.
✅ Variable annuities have the highest fees and market risk.
✅ Transparency builds confidence — always know what you’re paying for.

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DISCLAIMER:
The information in this podcast is provided for general educational purposes only and does not constitute financial, legal, or tax advice. Retirement Income School™ and Dr. Amanda Barrientez do not provide individual investment recommendations. Always consult with a licensed advisor or tax professional before implementing any strategy discussed.